Group Overview:
The old saying goes that any ongoing rally or uptrend without participation from the financials should not be trusted. That has not been the case this year as the overall market was moving higher without them, until recently obviously. On this chart dating back to March analyzing them to the major averages one can see the black line representing the financials was at the bottom nearly the entire time. Of course the space is very diverse, but most tend to look at your traditional money center banks, credit cards and payment plays. GS has just been crushed, now down 39% from most recent 52 week highs. DB is now lower by 60% from its recent highs, and has fallen more than 20% following the news on the first of November that an activist fund led by former JPM CFO took a 3% stake. C is on a 12 session losing streak, and AB which had been holding up well compared to its peers is now in bear market mode down 20% from most recent 52 week highs. It has a very shaky dividend yield of more than 11%. SQ and MA are lower by 45 and 19% respectively from their recent highs. Perhaps one should not look at its past performance this year as something meaningful, but instead focus on the fact that they may be conveying something about 2019, and the likelihood of interest rates rise may really be zero. And that has been spooking the overall markets too for the past couple months.
Ratio Chart Contrasting Finnies and S&P 500:
The financials overall have not been kind to shareholders nearly all year long. Comparing the group to the other 11 major S&P sectors it is in the bottom three on a one and three month, and one year time frame. Below is the ratio chart to the space up against the S&P 500, and we have seen the same old story with some oversold moves since the summer three times. The Fed talk Wednesday did mention another two possible hikes in ’19, and that could put a floor in the arena. But trends are trends and we know they are more likely to persist than they are to reverse, and they should remain in the penalty box until proven otherwise. The chart here shows the other 2 instances of outperformance, but each barely lasted a month and were met with swift returns to the downtrend. We will see where this one ends up but it is important to notice the last 2 made lower highs and lower lows.
Examples:
The financials have not been the place to be in 2019, as the group is deep in the red on any longer term time frame, but on a very short term look back they are the best actor. The XLF is the best actor on a one week period, albeit still down 4% on an absolute basis, but relatively speaking that is the strongest performance off all the major S&P sectors. Below is the chart of NTRS and how it was posted in our 11/15 Financial Report (we have not done a great deal of work in this space as it has been shunned overall). Gap fill strategies can be used not only on the downside for potential longs, but the upside for possible shorts as well. The stock did just that on 11/7 from the 10/16 session, and was unable to make much headway as it was stopped shortly thereafter at the very round par number with a bearish counterattack candle on 12/3. It is now lower 12 of the last 13 sessions and 30% off most recent 52 week highs. Not much to deposit your faith on, pun intended.