In an effort to look at the bright side of beaten-up markets and exchange traded funds (ETFs), some have been trying to call a bottom, but one piece of the puzzle is missing: a catalyst.

A major confidence-raising act from business or government has not yet been seen, so the possibility of a bear market rally or a market bottom is still just that – a possibility. Gary Gordon for ETF Expert says that in a world where confidence is everything, if the Securities and Exchange Commission (SEC) and Financial Accounting Standards Board (FASB) can convince the subcommittee to take action, therein lies a catalyst to stabilize the most beleaguered and beaten segment – the financial segment.

By all means, financial stocks are certainly not suggested as a long-term investment at this point, but if there’s any kind of rally in the markets, financials stand to outperform if only because they’ve been so slapped around. SPDR Financial (XLF) is nowhere near either its long- or short-term trend lines, though.

Another observation is that the utility sector was bet on by an unknown institutional player placed the largest ever option trade in the history of trading XLU options; 142,000 call options were purchased at an April strike price of 25, reports Gordon. The implication? Someone is either covering short positions or expecting new legislation to send the utilities market dramatically higher in a short period of time.

Patience is the key here. We’re not seeing strong uptrends in these sectors, so watch the 200-day and 50-day lines for the moment and see what develops.

  • iShares Dow Jones Utilities (IDU): down 21% year-to-date

  • SPDR Financial (XLF): down 42.6% for three months

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.