Wednesday, October 10, 2007

S&P Moves Higher While the Mortgage Stocks Show Weakness



The S&P continues to rally and make new highs for the year, but not everything is moving higher with the market. If you take a look at the above chart, you will notice the MFX index (mortgage finance stocks) and in the lower pane is the S&P 500.

What I find interesting about the above chart is that in the face of a stock market rally from August until now, the MFX index has gone sideways to slightly lower. This tells me that this particular group of stocks is under selling pressure and we may see a move down in these stocks in the coming weeks.

For those of you who are bearish on the market and looking for something to short, you may want to follow the mortgage related stocks because in my opinion they look a little heavy here.

6 comments:

Lawrence Chiu said...

It is not possible to short MFX since it is an index. However options are available.

Kevin said...

Hi Lawrence,

I never said short MFX, I said short mortgage related stocks. MFX is an index which cannot be traded, but the components of that index can be traded.

Nat said...

hey, i recently started reading your blog as im planning to persue a career in IB. Could you explain a little more of your reasoning behind this post?

I understand the S&P500, the MFX and the concept of shorting. But why does the falling MFX and steady S&P500 suggest this opportunity?

cheesefries said...

Take a look at SRS, it's an ultrashort real estate fund.

cheesefries said...

SRS seeks daily moves that are 200% in the opposite direction of the underlying index

stakeholder said...

SRS was a valuable suggestion...just what I was looking for. Bought it last Friday after reading this blog.

Kevin you should charge some kind of fee for this service. Quality information put forth with clarity.

Thank you

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