Finnies Swimming Against Current:
The belief used to be if a rally was enduring without the participation of the financials it was not to be trusted. I am not sure that notion still exists, but the markets in general overall have been doing just fine without them. One could make that argument that they were compromised on net interest margins, with interest rates being held near zero for years. Whatever the reason, PRICE action confirmed their weakness. With all the negativity surrounding the space the XLF did record a bullish harami candle, the week ending 11/2 rising more than 4% in active volume. The candles have been informative as usual, in near term tops and bottoms as the high coincided with a bearish engulfing candle the week ending 2/2 (occurred at the round 30 figure), which was followed with a huge drop the very next week of almost 6%. To me their is still plenty of technical damage to undo, and the group should be underweighted, until a CLOSE above a current double bottom trigger of 29.17. More aggressive traders can enter here with a stop below the harami low of 25.
Outliers Abundant, Oxymoron?
There were some eye opening breaks from correlation within financial heavyweights from the S&P 500 this spring. Sure their inclusion in a group that includes just four of the eleven major S&P sectors to be down YTD, but the relative weakness was startling. Below are two of the prime examples in GS and BLK. GS is on pace to potentially register a double digit weekly loss, down 9% heading into Friday, which would be its first in more than 5 years. It is back to the very round 200 number, a level it last touched almost precisely 2 years ago and is now off 26% from most recent 52 week highs. BLK has been bruised even more down 32% from its own most recent 52 week highs. It registered a 5 week losing streak that lost nearly 20% the weeks ending between 9/28-10/26. It’s hard to say if their frailty was a canary in the coal mine, but they were outliers. Remember trends tend to persist more than reverse, so the pain get still get worse before it gets better. Spend your mental capital on names that deserve it more.
The financials have been heavy since the selloff last February. It is a group that has made little headway into that early year softness, and the XLF now sits 13% off most recent 52 week highs, and that is AFTER a gain of more than 7% the last 2 weeks. There have been notable drawdowns in specific names in the sector, but look for potential bright spots among the rubble. Below is a possibility with the chart of CATM and how it was presented back in our Financial Report on 10/22. To be up front we were STOPPED out of this name for a small loss, but it has since snapped back following a THIRD straight double digit earnings related gain, with moves higher 22.3, 26 and 11.2% on 11/2, 8/3 and 5/4. I would only enter this name if it was to recover the 34.62 double bottom breakout trigger taken out on 11/7. Even as sickly as the market feels presently, and it can continue for a long time, it makes sense to keep a watchlist of names that withstood the 2018 negativity best. They will often be the first ones to shoot out of the gate when the markets catch a lasting bid.