Banks Continue To Deposit Gains:
The financial group overall has been trading as well as it has in years (a far cry from when the sector was the absolute worst performer on 2007, 2008 and 2011 falling 18.6, 55.3 and 17.1% respectively). On a YTD timeframe it stands third among the major S&P sectors, thanks to being the best actor on both a one and three month look back period. Below we take a look at the XLF which has bumped into familiar resistance at the round 30 number, which occurred back in early 2007 and 2018. The saying goes there is no such thing as a triple top, so if this time around is “different”, how many times have we heard that before, the group could be ready for a stellar run. The XLF has behaved well POST breakout from a bullish ascending triangle, and we know the best breakouts tend to work right away. The big move since the beginning of October may be exhausting itself here with the presence of multiple small bodied candlesticks. But PRICE is omnipotent, and if 30 is taken out on a CLOSING basis be offensive.
Yield Rise Exposing Homebuilders?
The 10 year yield has big implications with not only the banks which affects their margins, but the homebuilders as well, as potential home buyers are sensitive to their movements. It has seen a big jump in the last couple months trading as low as 1.43%, and now feeling apprehensive at the round 2 figure, which is not surprising as it was former support dating back to September 2017. With the precipitous drop of yields, the builders benefitted handsomely, but now its recent action has them a bit anxious. This is coinciding with a long double top on the ITB, which is more of a pure play on the group as the top 4 holdings are DHI LEN NVR PHM which represent 42% of the fund, compared to the XHB which has just 3 builders in the top ten holdings that make up 14% of the ETF. Know your holdings. PRICE on the ITB may be hitting a long term double top as seen on the chart below. The easy money has obviously been made, and one could not fault anyone for taking money off the table.
With the traditional money center banks usually garnering most of the attention in the financial sector, some will go overlooked. Below is the chart of an insurance name FAF, and how it appeared in our 11/4 Financial Note. The overall group is acting well and the KIE ETF is trading just below a 35.39 cup with handle pivot. The fund has been digesting the strong fun which rose 21 of 29 weeks ending between 12/28/18-7/12 (5 of the decliners lost less than 1%). FAF has been a steady, gradual mover to the upside. Its chart trades bullishly taut, just the opposite of wide and loose bearish action. Also it as acting well POST breakout, yet another good sign. If one were to observe its present chart, today has the look of breaking above a bull flag pivot of 63, which would carry a measured move to 68. Keep in mind measured moves are just guidelines of where one can trim positions, or do nothing at all as they often have longer term investors selling too early and missing a potential big run.