Group Outlook:

The financial group somewhat stabilized this week as the XLF rose .9%, the fourth best weekly showing of of the 11 major S&P sectors (the three best actors by far were very defensive in nature with the XLP, XLRE and XLU all advancing 4.4, 3.3 and 3.1% respectively as the chart below states). Both the bulls and bears can take something away from its as the bulls will point to the inability to force the ETF lower after the prior week slumped 5.6% on huge volume. The bears would acknowledge it was a very lackluster response. A bevy of earnings came forth recently and the first few were praised as JPM and BAC reported but they were unable to CLOSE firm after a nice early response with the losses coming in at 1.1 and 1.9%. On 10/16 however MS and GS had those initial gains stick and finished sturdy up 5.7 and 3% respectively. The XLF is now 12% off most recent 52 week highs, and my feeling last week is the same which is tread carefully of the space until the ETF can clear 30. Of course that is more than 10% away so patience should be the name of the game and trading smaller than normal size.

Interest Rates Not Giving Banks a Boost?

The big question that must be on investors minds who focus on the finnies is why they can not rally when it seems like everyone knows interest rate rises are almost a certainty? The Fed declared that this week, in spite of Trump declaring his unhappiness with it. Of course the Fed can do that directly as they have stated that is their motive going forward, but it will have indirect forces behind it as well. Many believe the markets themselves dictate interest rate movements, and the TNX broke above a cup with handle trigger near 3.10 on a huge day on 10/3, and came close to retesting it last week and held firm. The greenback seems like it wants to keep climbing upward and that should lead to higher interest rates too, as capital flows to where it is treated best. Most likely that will force down emerging markets as well, although the chart below shows a bit of positive divergence as RSI makes higher lows with PRICE not cooperating until this past week.


The asset manager plays seem to be under pressure, and when you have leaders like AB that sports a dividend yield of 9%, that should make anyone nervous. VALU is also a general in the subsector, but trades in an extremely illiquid manner, but give it credit for trading near a 25.65 cup base trigger in a pattern that began way back in December of 2016. Below is the chart of peer TROW and how it was presented in our Financial Report on 10/10. It is finding support at the very round 100 number the last 2 weeks, but is that comfort transitory? It now trades in bear market mode down 21% from most recent 52 week highs. It has dropped in value 13 of the last 19 weeks, and 3 of the advancing weeks rose less than 1%. TROW is now back to the February lows and a break underneath 100 would be a rounded top pattern breakdown with a measured move to 73.

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