Financials To Deposit Big Gains in 2019?

Last week the XLF ROSE more than 6% to record its best weekly advance in 26 months. Volume is still on the light side, and it trades 16% off most recent 52 week highs. But after being rejected at the round 30 number the weeks ending 1/26-2/2/18 a double bottom pattern looks to be setting up. It still has plenty of work to do, but a double bottom trigger of 29.17 is taking shape in a pattern nearly one year long. Curiously in 2018, the group finished the year only the eight best of the major S&P sectors, but a sign of health could be seen below as it was the first year in 12 that there were no bank failures recorded. 

Interesting Ratio Chart:

Two of the largest lagging groups since last years early correction were the financials and semiconductors. The XLF was unable to touch the February ’18 highs, and the SMH although it did briefly surpass their late January highs in March, the ETF was a “leader” to the downside for the rest of the year. The SMH currently trades still in bear market mode down 21% from most recent 52 week highs. Could this be a sign that the banks are ready to shrug off their loafer status? Keep in mind GS had its best day in 10 years on 1/16, although it seems to be pausing at the very round 200 figure.

Examples:

There is no question emerging market plays have been outperforming their domestic peers. Below is the chart of a bank play, and how it was presented in our 12/21/18 Financial Report. Notice how the round number theory came into play, as the 10 figure was rejected 9 straight weeks ending between 11/2-12/28/18. It is now looking like the 10.25 breakout above a bull flag trigger will be retested soon, which is not uncommon at all. Advantage bulls as a rising 50 day SMA will be support right at the pivot.

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