Monday, September 30, 2019

Equities: "Financials Are About To Do Something They Haven't Done In Nearly 18 Months" (XLF; KBE)

From StockCharts:
Financials (XLF) had been rather dormant for nearly 18 months - at least on a relative basis to the S&P 500 - but that is all about to change. While the group is certainly beginning to flex its collective muscle, the real confirming signal would likely be a 10-year treasury yield ($TNX) break above its earlier September high of 1.90%. The following is a relative chart vs. the benchmark S&P 500. In particular, check out the relative momentum (PPO):
A positive relative PPO is important because it tells us that momentum on a relative basis has begun to shift the financials' way. Over the past month, financials have moved into a leadership role. Another way to look at that here at is to look at the sector summary. Here's the leaderboard over the past month:
It's a little too early to say that this leadership role will continue, but the big clue will most likely be the direction of the TNX. When the TNX is on the move higher, the XLF:$SPX ratio usually is too. Check out the positive correlation here between the two:...

The 10 - year is currently yielding 1.697 % +0.024, so looking for rates to back up to (and through) 1.90% is a bit of a contrary bet but if it happens bankers (and longs) will be happy.