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The Key To The Stock Market Rally Exposed

The bank stocks have finally started to participate in the market rally. This first started with Warren Buffett investing $5 billion in Bank of America Corp (NYSE:BAC) last week. Logic dictates the President of the United States asked Buffett to give the markets a boost of confidence. In addition, Buffett gets a 6% yearly dividend from the preferred shares and the option to buy 700 million shares of Bank of America at $7.14. This is a sweet deal but to be expected from a seasoned capitalist like the Oracle of Omaha. This action gave the financial sector a one day boost. Now Europe is giving it a more sustained rally.

Any sustained rally must contain gains by the financial sector. Remember, the banks are at the core of what is going on in Europe and the massive fear that has spread from their debt crisis. If you look at any bank chart you will see they have been a leading indicator of the recent downside and the hardcore issues hitting Europe. Bank shares like Goldman Sachs Group, Inc. (NYSE:GS), Citigroup Inc. (NYSE:C) and Wells Fargo & Company (NYSE:WFC) all made their yearly highs at the start of 2011. The weakness was a golden indicator of what was to come.

Now they have started to rally. While the rally may be short lived, it does show a build in confidence in the markets that will last through the holiday weekend of Labor Day. If you want to know the health of the market, simply follow the financial sector.

Gareth Soloway



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