Sunday, September 23, 2007

The Mortgage Finance Index

Above we have a chart of the Mortgage Finance Index (yes there is an index for this group of stocks) and in the lower pane is a chart of the S&P500.

As you know I've been bullish on the stock market, however within this bull are groups of stocks that are weak. The mortgage finance index and the homebuilders are two groups that I'll be watching closely for potential shorting opportunities on rallies.

The Mortgage Index (symbol $MFX) is a weighted index comprised of 24 stocks. Some of the big boys in this group are Washington Mutual(WM), Fannie Mae(FNM), Country Wide Financial(CFC) and Freddie Mac(FRE).

As you can see in the above chart, the S&P500 is not far from its highs for the year, but the mortgage related stocks are well off their highs for the year. This group of stocks continues to make lower highs and lower lows. Note the band of resistance which might be a good area to initiate a few shorts.

My plan is to wait for the S&P, dow and NASDAQ to make new highs for the year and then I'll take a look and see if the weak groups continue to remain weak. If they do stay weak, then I'll consider throwing on a few shorts. We'll see how things unfold.


Sandro said...

1. Is there any ETF that covers that mortgage index?

2. I think the $SPX will not make new highs for the year. I think that the day after rate cut was exactly similar to the cut of January 3rd 2001 - i.e. great point to sell.

And I think that fundamentals today are materially worse than January 2001.

Kevin said...

Hi sandro,

There are a few homebulider and financial ETF's but I don't think there is one for just the mortgage index...


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