Overtime

Financials

Good morning,

In yesterday’s Monday Morning Playbook, we looked at the underperformance of financials and why cyclicals sectors needed to step up.

Yesterday was a strong start with the market rising throughout the day and many charts (including transports) confirming bullish reversal patterns from Friday.

But financials are the largest cyclical value sector and if market breadth is going to fix itself and “catch-up” to the indexes, it isn’t going to happen without them.

Fortunately, I think there are reasons for optimism when looking at the longer-term charts.

This week, we’ll look at:

• Absolute and relative technicals for XLF

• Industry-focused ETFs

• 3 leaders and 3 laggards at the individual stock level

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XLF: SPDR Financials Sector

The battle at the 2022 highs

Financials briefly made a new all-time high in late March but have since chopped around in an 8% range. The January 2022 highs are a logical place for this type of consolidation but investors should focus on the big picture. This is a big base and only a break of the April lows ($39.53) would put that thesis at risk.

Zooming in

Looking at the daily chart, financials have seen bullish intraday action the past 2 days and Friday’s low ($40.37) should be viewed as a tactical line in the sand. There’s a host of resistance just above current levels but XLF only needs a 2% gain from current levels to clear it all.

52-week relative high to 52-week relative low in just 2 months

Financials were one of the most consistent and best-performing sectors outside of technology from last June through late-April. But, like most sectors, the relative chart has fallen off a cliff the past 2 months as market leadership has narrowed to the largest growth stocks. We’re oversold enough for a bounce but how much of a bounce we get will be important to watch.

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ETF focus

Insurance has lost its hold of leadership