Here are five reasons I don't believe this rally has legs ... and why I find XLF's 10% run today rather incredible.

Well, Matt—if your research holds any water, today must have been a BOOM day for the (RAFI) fundamentalists out there. And this huge rally for XLF? I don't believe it for a second. In fact, the same dangerous impulses that led me to buy XLF at $15.07 (and see it promptly drop to below $6) are urging me to sell now that we're almost touching $12. After all, in that October binge of ETF buying (heavy on XLF and FXI—that would be the SPDRs Financials and the FTSE/Xinhua iShares for the less-ETF-focused among you), I'm actually AHEAD right now ... after a disastrous start.

In this environment, I'm looking forward to talking to Rob Arnott this Thursday at 1:00 p.m., where he'll be doing a webinar

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Betting on a bottom in the financial sector is gambling, Jim.

It may be a good bet or a bad bet, but it's a bet all-the-same. Let's not pretend otherwise.

We are in completely unchartered waters here.  We have no idea what the financial services industry will look like in six months. We cannot even be sure what it will look like in six days.

We've got the House Republicans playing political football with the bailout; Henry Paulson trying to appoint himself czar; Wall Street banks begging with one hand and lobbying with the other; and Presidential candidates who refuse to comment on the most pressing financial crisis in eighty years. 

There is a black hole of leadership in this country, and that's frightening.

The only reason there isn't panic on Main Street is that people don't understand the credit markets. The credit markets have stopped functioning. LIBOR spreads, money markets, CDS

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Global stock markets are still under correction. Major indices haven't succeeded to rally after they bottomed on March this year. Last week Dow Jones Industrial Average has turned into the bear market by drop more than 20% from recent October high. Market lab show still Head and Shoulders bearish pattern for S&P 500 and DJIA on weekly basis. We have closed 4 consecutive weeks in negative for broad US indices.Iran tension and weak USD lift crude oil to new all time high. Another commodity supported by current market conditions is gold by endless sub-prime mortgages financial crises.Worse earnings reports are dragging down shares which again triggers selling pressure on US dollar. Which makes vicious spiral.Outflow from US dollar and shares helping some markets and their currencies. Especially economies growing still at modest pace. Have a look to Czech currency Koruna. Despite 20% appreciation ...

Large banks are way down in the past 12 months, and as a consequence their trailing yields are well above normal.  That potentially creates substantial long-term equity income opportunity, but the big question is whether the dividends that make those yields will hold or be cut.

If you subscribe to the “buy it when it’s cheap” philosophy, then you really need to evaluate any sector when it sinks the way large banks have done.

If you conclude that taking a position (partial or full) in large banks is the right thing to do, we believe that you should buy the sector, not individual banks (unless you have high research-based conviction about the individual company).

If you buy the sector, you are exposed to systematic risk for banks (general market risk and industry specific risk, such as more mortgage market trouble).  You would probably hold …

Large banks are way down in the past 12 months, and as a consequence their trailing yields are well above normal.  That potentially creates substantial long-term equity income opportunity, but the big question is whether the dividends that make those yields will hold or be cut. 

If you subscribe to the “buy it when it’s cheap” philosophy, then you really need to evaluate any sector when it sinks the way large banks have done.

If you conclude that taking a position (partial or full) in large banks is the right thing to do, we believe that you should buy the sector, not individual banks (unless you have high research-based conviction about the individual company).

If you buy the sector, you are exposed to systematic risk for banks (general market risk and industry specific risk, such as more mortgage market trouble).  You would probably hold some stinkers in the group, but you would also hold

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“Unless there’s a financial Armageddon everything will be just fine.”
SAM Advisors

Truer words were never spoken. This is why I don’t watch financial TV during the day and am glad not to be a guest saying dumb things.

So, we got some dollar pumping and related commodity weakness as the WSJ suggested that the Fed may cut a quarter point on Tuesday and then stop. C said they’d keep the dividend and everyone got all lathered-up to sell the previously hot commodity sector and buy financials.

Volume picked-up smartly but breadth wasn’t really impressive. [You’ll note Yahoo/Finance’s continuing struggle with math 101.] The action was focused in bigger names but the A/D line in the NASDAQ was negative meaning the heavy volume was focused in the biggest names.

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