$XLF Breakdown Doesn’t Bode Well

Takeaway: As the Financials (XLF) go, so goes the market.

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.

$XLF Breakdown Doesn’t Bode Well - yaya 

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.

$XLF Breakdown Doesn’t Bode Well - Beta

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. 

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