Overtime
Mailtime
Good morning,
Mailtime came early this month, but you all didn’t let it throw you off schedule.
We got great questions and timely chart requests, so thanks to everyone for the strong participation.
Let’s see what your fellow readers are watching!
Questions
What are your views on big banks vs. regional banks?
Both look good, and charts suggest the potential for gains in the second half of the year and continued recent outperformance vs. the S&P 500. At the beginning of this month, I wanted to increase financials exposure, and both were under consideration. Ultimately, we went with KBWB (KBW Bank Index ETF) because of the chart below:
Above a rising 200-DMA, the relative trend simply favors the big banks.
It’s great that the advance-decline lines are making new highs but semis (now 20% of S&P 500) are looking tired. Time for digestion in the weak seasonal period? What would get you more bearish overall?
I certainly wouldn’t be surprised, and the past two Monday Morning Playbooks have called out semis as one of the primary risks to the index. One, from a math perspective, they’ve grown to be so large that they drag on the cap-weighted index if downside action continues. And two, there’s the risk of contagion that could, at some point, cause unrelated stocks to fall (though, importantly, we haven’t seen any signs of that yet).
The seasonals are a headwind until the election, a dollar breakout is a top risk I’m watching, and I would like to see more leadership from cyclicals over defensives.
So don’t think I’m seeing things through rose-colored glasses.
But I also want to pump the brakes on being outright bearish. Participation is hitting multi-year highs, and every major index is above a rising 200-DMA. I would need to see trends break and turn lower before I would want to consider myself outright bearish and make the case for underweighting equities relative to benchmarks.
What are your thoughts on USD/JPY and investment implications for Japanese stocks?
