Tuesday, April 08, 2008

Mortgage Finance Index Diverging



I'm always on the lookout for divergences between various markets. Above we have a daily chart of the Mortgage Finance Index (MFX) and below that is a chart of the S&P 500.
You'll notice on this last push up in the S&P, the Mortgage Finance stocks did not make a new swing high. The Mortgage Finance stocks made a lower high in the face of a rising stock market. In my opinion, this is bearish for the mortgage finance stocks and I think we may see them sell off and retest last month's lows.

We cannot trade the Mortgage Finance Index (MFX) but we can trade some of the most heavily weighted stock components within the index. Some of the weak mortgage stocks are Fannie Mae (FNM), Freddie Mac (FRE) and Countrywide Financial Corp (CFC).

3 comments:

stakeholder said...

Thanks for continued brilliance Kev.


What do you think about SRS as a short play?

Kevin said...

Thats not my kind of trade

Anonymous said...

Or alternatively the S&P could reverse.

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