The financials continue to be a drag on the markets as they continue to encounter heavy selling on any market strength. While there have been some pockets of strength in smaller regional banks, the large institutions have been under relentless selling. The group, as represented by the SPDR Select Sector Fund
), had started to trend lower earlier this year, but really accelerated in late July. XLF has been trading below its 50-day moving average
since March and has encountered selling on every rally attempt. The recent breakdown completed a larger overall top. XLF, and thus the financial sector, has been setting lower highs and lower lows for months now, and it is in a confirmed downtrend. Goldman Sachs Group, Inc.
) used to be the clear leader in this space, but even they have fallen under the weight of selling pressure. GS topped out in April as it broke under a base it had been building, but the signs of weakness really appeared in February when GS started to set lower highs. GS has been under constant pressure since then with volume increasing on down days. While the last bout of selling has some signs of capitulation, it is much too early to assume a bottom, and GS is still well within a downtrend.
Another financial that is clearly in a downtrend is JP Morgan Chase & Co.
). JPM had been consolidating
in a base before breaking down in March. It has been setting lower lows and highs since then as well. Much like the other financials, JPM really fell apart in late July and August as selling pressure intensified.
) is another example showing how intense the recent selling pressure has been. MS had actually held up much better than the other financials until finally caving in towards the tail end of May. After a brief consolidation, MS fell apart losing one quarter of its value in a few short weeks.
Perhaps the weakest of the sector, Citigroup, Inc.
) has been cut almost in half over the past few months. As you can see from the chart below, the stock has been steadily trending downward for months and dropped a significant amount in just the past few weeks. C had to reverse split
earlier this year to shed itself of a low-price stock image, but unfortunately, has been steadily declining despite it. The Bottom Line
The financials have been one of the weakest groups overall and continue to show very few signs of strength. With the markets now possibly topping, investors are likely best served avoiding this group. Even if the sector is under a capitulatory
selling phase, it will take a very long time for this group to stabilize. A truly healthy bull market will eventually need this group to tag along as their health corresponds directly to an improving economy where money is being lent to businesses. This will likely appear in these stocks before it does in the economy, but as of now it is not appearing in either. Until this group stabilized and starts setting higher highs, it is likely better off left alone.
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At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.