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The Unconvincing Rally In Financials

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by Felix Salmon
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Jul 17 2008 12:00am EDT

The Unconvincing Rally in Financials

Financials are on a roll right now: the XLF index fund, which tracks the S&P financials index, traded as high as $20.89 this morning, exactly $4 or 23.6% higher than where it traded at the same time Tuesday morning. That kind of volatility bespeaks short covering to me, which means that the growlings from the SEC might be partly responsible for this latest uptick.

The problem is that short-covering rallies, by definition, have no conviction and often don't last long. We're in the middle of earnings season, which means volatility's probably going to remain high in the short term. And anybody looking at this mini-rally and seeing cause for optimism is, I fear, being decidedly premature.

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