From the desk of Tom Bruni @BruniCharting
This week’s talk of the town is how Financials, particularly Regional Banks, are rolling over relative to the rest of the market at a faster rate than the Yield Curve is rolling over.
While that’s certainly something worth noting, Financials as a group don’t really become that interesting until they break out to new all-time highs.
The XLF is close, but not there yet.
Instead, I think the focus should be on the Broker-Dealers & Exchanges ETF (IAI) as it presses up against all-time highs of its own.
Let’s take a look at what’s happening.
Here’s the Broker-Dealers & Exchanges ETF (IAI) holding well above its 2007 highs after a successful breakout retest in January 2019. Today, prices are pushing back up against their 2018 highs as momentum approaches overbought territory on the weekly chart, confirming the strength of buyers. From a structural perspective, there’s not a lot to dislike here.
Click on chart to enlarge view.
Tactically, we may see some backing and filling as prices attempt to push above resistance on waning upside momentum. Regardless of whether a breakout comes in the next few days, weeks, or months, the 2-year basing process has confirmed that buyers are in control and that we should be erring on the long side of this sector…especially if prices can break decisively above 71. When that does happen, we can define our risk on the long side with a target near 82. Until then, the more attractive reward/risk opportunities lie in the individual names.
For example, here’s Intercontinental Exchange (ICE) consolidating tightly since August and now pressing up against all-time highs. A breakout above 95.50 would signal the continuation of its long-term uptrend and target 103.50 over the next 3-6 months.
Other components in the index remain well off their highs but have spent much of the last year creating a base of support and are now working to confirm a bearish to bullish trend reversal. PJT Partners (PJT) is a prime example of that. While the action may remain choppy in the near-term, a decisive move above 45 would confirm the start of a new uptrend that targets its all-time highs near 61.
The action in the index and individual names is clear enough. If you’re going to be involved in Financials, the Broker-Dealers & Exchanges subsector is a great place to be and a breakout in the index looks likely sometime soon.
If you’re going to play this thesis through an individual stock, just be aware of their reporting dates as we head into the thick of earnings season. No need to take unnecessary risk into an event we have no edge in, that’s not where our advantage lies.