The John Elway of S&P Sectors

JC Parets
February 5, 2020

We don't have bull markets in America without Financials participating. That's just how it is around here.

I look through a lot of charts, as you guys know, and there are always a few that really stand out and explain the current situation. I've pointed out how there is further potential of overhead supply for stocks at these levels, particularly internationally. That means that, for the most part, the market has proven that there are more willing sellers than buyers around here. You can't see it if you're just looking at S&Ps and the Dow. But when you go sector by sector and country by country, trust me, it's there.

So bringing it back to America, Financials are in quite the predicament. You can't have a success story without an original struggle right? Well this $31 level has been an issue since the epic top in 2007 before the financial crisis:

We're going on 4 tests of this level going back almost 13 years now. The way I learned it was that the more times that a level is tested, the higher the likelihood that it breaks. But how many tests will it take to accomplish that?

John Elway lost 3 Super Bowls before riding off into the sunset with back-to-back Super Bowl victories almost a decade later. I believe that Financials are the John Elway of S&P Sectors. I think they'll ultimately get it done. I just don't know how long it will take. But I do believe that a breakout above 31 will be a heads up that it's time.

Remember, we're not talking about outperformance here. We're just talking about participation. It's been well-documented that Financials have not been leading anything around here. We live in a Tech world. But you can't argue with me about them moving in sync:

If S&Ps are heading higher, we need to see $XLF above 31, which are those former highs since 2007. That's how I see it.

And yes, Berkshire Hathaway is the largest component of the index because of their exposure to insurance, reinsurance and wells fargo, among other assets. But the next largest holdings are JP Morgan, Bank of America, Citigroup, Wells, US Bancorp & American Express. So don't hate on it because there are a few railroads mixed in with Uncle Warren.

This really might be the most important chart in the world right now.

And if it's not that important to you, that's fine. It's important to us.

Am I wrong? Should we be ignoring this?

Let me know!

JC

 

Filed Under: