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Sunday, December 9, 2007

Financials hit bottom yet? RSS Indicator provides one clue

A contrary stock market indicator that has been humorously written about is the "magazine cover" indicator. For example, when a mainstream magazine writes about a big bull market in stocks, you can bet a correction is coming.

A few days ago I was catching up on reading some RSS feeds that I subscribe too and I was struck by the list of bad news in the Financial feed from MarketWatch. It just seemed like one after another item described some negative development for one financial firm or another. A rough tally indicated that fully three fourths of the news items were negative. It gave the definite impression that financial stocks are still in a tailspin.

It occurred to me that when the number of news items start skewing more toward the positive, maybe then we can say the bottom in financial stocks is behind us. With tongue in cheek, I call it the "RSS News Indicator" and it can give a quick sentiment indicator based on a snapshot of the recent news stream for the sector.

With some investors like Bill Miller, Citadel and Goldman Sachs starting to nibble at downtrodden financial assets, perhaps the bottom is not so far off.

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