All About the (Unloved) Banks

This past week the Financial sector did the heavy lifting. The financial ETF (XLF) far outperformed the main ETFs in technology, industrials, materials, energy, biotech… you name it.

I consider this surge a significant development; one that bodes well for higher prices in the major indices, even though financials comprise the most unloved sector in the S&P. Here’s the backstory.

In the midst of the market carnage back in February I noticed a “morning star” candlestick pattern on the daily chart of the financial ETF (XLF). It took a while for the upside momentum to ignite, but on March 1st the XLF crossed another key resistance level at $21.50 and it was game on

To be sure, as indicated by the accompanying chart, not all is well with the financials. The 6-year rally off the 2009 bottom fizzled in July of 2015 at $25.62 and the sector has yet to reclaim those highs. Few would have predicted that the S&P 500 could be within a few percent of all-time highs without the full recovery of this sector, but that’s the nature of the New Market. It is different this time.

Financials remain something of a pariah; as a group they are among the most mistrusted companies in America, perhaps because they have been so reluctant to admit wrongdoing and change policies. This week the Fed identified 5 major banks as too big to fail and also labeled them unprepared for a crisis and in need of supervision.

Nevertheless, despite declining revenues and increased write-downs, Bank of America (BAC) and J.P. Morgan (JPM) were up 9% and 7.5% respectively over the last 3 trading days. Investors are looking across the darkened valley to brighter days ahead. Moreover, these numbers are about double the performance of the ‘FANGs’ over the same period.

Bottom-line: If the banks are alive and well, the market will be, too. One more reason to stay long and buy dips.

www.daytradingpsychology.com/mastermind  (Peak performance coaching for private traders)

REID_XLF_4.14.16A.png

 

1 Comments

Join In on this conversation, post a comment below.
Visitor - GORILLA21: WOW! Have you read Michael Lewis' "The Big Short" ??? The banks are carrying derivatives to the tune of in 100's percentile in excess of book value-- should the derivatives implode; which they will most probably will-- how fast will shares plummet, and how far???. Take a look at SPY, which has been bouncing off a major support line; and on April 7th Deutsche Bank settled a case being litigated at the Southern District of NY, and admitted the bank's involvement in commodity price fixing of AU and AG
(gold and silver)-- part of the settlement agreement the bank will provide detailed documentation of said illegal activity to the plaintiffs, which INVOLVES other major banks (JPM comes to the fore as it is a major player in the silver market). AND you are presenting a view to buy financials ??? WOW, that to me is either the height of irresponsible journalism or sheer ignorance...
Reply Flag

Related

options

Stocks: It's Time To Protect Your Portfolio

Protecting one's portfolio can be done in various ways - by neutralizing long stocks with equivalent...

April 08, 2016