We are in a bear market, folks. This means you need to be careful in your trading and watch your risk management and exposure at all times or you could face some major losses.
We are seeing bearish sentiment and higher risk in the financial sector, which I have been suggesting that you avoid over the recent months. The reality is that the housing market remains in crisis and the impact on the subprime mortgage and credit markets will continue. Yes, there have been major write-downs of debt relating to credit issues, but I do not believe it is over as of yet.
Financial stocks are currently a dividend play, but be warned that there remains downside financial risk in holding onto financial stocks with exposure to the housing market.
And while dividend yields currently appear to be quite attractive based on the payout, I would be hesitant to accumulate financial stocks given the existing turmoil and uncertainties of further breakdowns on banks after the collapse of IndyBank.
The reality is that yields have moved significantly higher because stock prices have declined. In my view, I do not believe this is a valid reason to seriously look at financial stocks. I would wait for clearer signs of strengthening in the mortgage and housing markets before diving in.
All in all, trading continues to be driven by concerns towards a slowdown and recession in the United States, along with housing and credit risk.
Caution and volatility remain the key characteristics of the current market climate. The current trading is driven by headlines, which makes volatility a major issue. As an investor and trader, you need to be careful in this market and protect your capital. Taking big risks could wipe out your capital for trading.