Financials remain in consolidation mode at the pre-COVID highs, an area that investors are watching closely for further price action. Yield curves have been under pressure, creating a headwind for relative performance in the space. Breadth in the sector received a positive boost in strength among individual stocks; but will it be enough for the sector to hold the pre-COVID highs?
S&P 500 Financials
The Financials are fighting hard to hold support at the pre-COVID highs as they trade below the declining 50 and 200-day moving averages. There is no question that the bears remain in control of the trend and it will take a move above 590 to have confidence that the bulls are back in the fight.
Relative to the S&P 500
On a relative basis, the group is in consolidation below choppy 50-day moving average. Support is now being tested and a break would open the door to the 2020 lows.
Once again, we are drawn to the trend in the 10-2 Curve as a guide for the potential relative performance of the Financial sector. The weekly chart shows us that there is usually a positive correlation between the curve and the relative performance of the group. In our work yesterday, we noted that key curves were inverted.
Industry Trends
The flattening curve continues to keep the banks pinned to the mat and below the pre-COVID highs. The group is below the declining 50-day moving average with room for the 2020 consolidation zone.
Relative to the broader financial sector, the group remains in a bearish trend, below the 50-day moving average.
Both Large and Regional banks remain below broken support as they trade in their respective downtrends.
Capital Markets stocks continue to trade below the declining 50-day moving average, which has done a good job of acting as resistance to rallies. Odds favor a test of the pre-COVID highs.
Relative to Financials, the group is holding below resistance but has regained the 50-day moving average. There is a lot of work to be done before this group can be considered a leader in the sector.
The concept of finding what is “less bad” applies within sectors as well. Insurance has been and remains a sloppy chart. The group is in a neutral position, adobe support but below the declining 50-day moving average.
The neutral trend has been enough to make the group a leader in the Financial sector. The ratio is trending higher above the rising 50-day moving average.
Breadth
The percentage of Financials components outperforming the sector over the prior trading day received a boost in the July 11th trading session, crossing above the 75% mark. There were 558 instances since 2000 where this indicator crossed above the 75% mark for a median gain in the sector of 2.24%, with a 63.45%-win rate over the following quarter. As the sector tests the pre-COVID highs, it’s noteworthy to see strength develop among individual stocks at these levels, while the 520 zone in the index offers a clear area in which to manage risk.
This note is a preview of our Sector Deep Dive. See our thoughts and more in the full report.
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