Bank Stocks On Breakdown Watch

JC Parets
June 25, 2020

Financials are what we're watching very closely this week as a warning of a more substantial stock market correction throughout the summer.

Our strategy has been to buy stocks that are going up. That's worked well. But if you noticed, that has NOT included financials. It's been mostly in the Technology, Internet, Social Media, Biotech & Mobile Payments sectors. That has been our go-to universe during this multi-month rally in stocks.

However, even though we haven't been buying bank stocks, that doesn't mean we just ignore them. Quite the opposite, in fact. If you recall, it was the bank stocks that helped us get so bearish in early February, well before any market crash. We are focused on this group again today for the exact same reasons: Risk Management.

Here is a chart of Financials flirting with that 23 level. That represents the former highs from April. If we're below that, the risk in here is down, and not up:

I will also point out that when Financials broke out to new highs this month, Relative Strength did NOT! As you can see, Financials relative to the rest of the market put in lower highs in June. That's part of the "warning" that Financials will be giving investors if $XLF is below 23.

This is something we're going to be monitoring closely and will be a major topic of conversation for us next week. If we lose the banks, something bigger is likely brewing out there. The ability for Financials to hold above those April highs, I believe, is essential for the major US Indexes to continue higher.

We get new Monthly Charts on Tuesday! This will force us to take a step back and identify the direction of primary trends in assets all over the world, including U.S. Stocks, and U.S. Financials, more specifically.

Usually, late June before the July 4th weekend is boring and not much goes on in markets.

Is this time different?

JC

 

 

 

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