Editor's note: The post below is a complimentary excerpt from CEO Keith McCullough's pre-market morning research. For more information on how you can become a Hedgeye subscriber click here.
As the Financials (XLF) go, so goes the market.
In other words, if Financials break, that’s a very bearish signal for the market’s beta. Yes, beta matters.
The XLF snapped Hedgeye’s TREND line ($21.21) this week, and barely closed above it yesterday. This is the single most important sector signal for me today.
Why are Financials broken?
Because bond yields are falling. When bond yields fall, the yield spread compresses. The 10-year yield remains below our TREND of 2.80%. This of course is a negative for Financials on the margin.
So, whatever yesterday’s low-volume U.S. stock pop was (month-end?), it’s not popping this morning. In all likelihood, Mr. Market breaches 1,779 support on the S&P 500 if indeed the Financials are broken.