Financials are the talk of the planet right now. On January 8, we pointed out to premium members that “something was not right” in the KBW Bank Sector ($BKX) — days before the latest run on bank stocks. It wasn’t rocket science: momentum players fled M&T Bank (MTB) and others followed very quickly.

iShares Dow Jones Transport. Avg. (ETF)(IYT)

Daily Chart with 50- and 200-day Moving Average

Relative Momentum vs. Dow Jones 30 Index, Daily Chart

Next Up: Dow Theory Sell Signal?
What might be the next sector to receive a swarming? Perhaps investors should pay attention to the Dow Theorists. Jeffrey Saut of Raymond James gave his Dow Theory thoughts in his weekly market report.

“On November 27, 2008, I noted the Dow Theory sell signal of November 21st. More recently, I was hopeful that a Dow Theory buy signal would be registered when and if the DJIA (8281.22) closed above its November 4, 2008 closing high of 9625.28, and confirmed by the D-J Transportation Average (TRAN) bettering its like high at 4071.81. For that to happen, the financials needed to stop going down.

Obviously this just hasn’t occurred, with most of the financial-centered indices getting eviscerated last week, and in the process traveling below their respective December lows.”

His call for this week issued on January 19 was:

Consistent with last Monday’s strategy report, the Maginot Line at 851 (SPX) was broken to the downside last week, leaving us again in cautious mode. While the DJIA was down 3.7% for the week, the real casualty was the D-J Transports with a stunning 9% loss, leaving them only 158 points above their November 20, 2008 closing low of 2988.99.