US Strategy – Financials Breaking Down

On Wednesday, the S&P 500 closed at 1,081, down 0.9%.  The S&P declined for the second straight day on accelerating volume, although the market was in positive territory for most of the day.  Yesterday’s move at the end of the day was on outside reversal, which is also a bearish sign. 

 

On the MACRO front, the global RECOVERY theme provided the upside support ahead of the release of the Chinese economic data. Chinese GDP rose 8.9% in the 3Q; the median of 34 estimates in a Bloomberg News survey was for a 9% gain. 

 

Yesterday, portfolio activity included buying GS and shorting MS. Keith also shorted TOL, AAPL and PENN.  We also shorted more of the USO. 

 

The dollar weakness continued yesterday as the UUP declined 0.6%.  Yesterday the VIX surged 6.3%.  With dollar weakness, Energy (XLE) outperformed the S&P 500.  December crude finished  up $2.25 at $81.37 a barrel, the highest settlement since October 9th 2008.  The materials (XLB) did not benefit from the dollar weakness, as an earnings miss from Dow Chemical (DOW) weighed on the chemicals.  Further weakness is expected in the XLB today as Potash (POT), which is one of the world’s largest fertilizer companies, missed numbers this morning. 

 

Yesterday, only two sectors were up on the day (XLU and XLK) and five sectors outperformed the S&P 500.  The three best performing sectors were Utilities (XLU), Technology (XLK) and Energy (XLE), while Healthcare (XLV), Consumer Discretionary (XLY) and Financials (XLF) were the bottom three. 

 

The Financials have been the worst performing sector in the market in 4 out of the last 5 days and is now broken on the TRADE duration.  The regional banks have been dragging down performance of the XLF on real estate and credit concerns, which has been further emphasized by Fifth Third Bank this morning who reported weak earnings on the back higher than expected bad loans.

 

On the political front related to financials, Elizabeth Warren was on CBS’ Early Show this morning discussing compensation for “piggy” bankers.  Warren, whom heads the Targeted Asset Relief Program's oversight committee, stated: "Guys, you have to understand that you can't party on like it's 2007. If you're going to take taxpayer dollars, then the game has to change. In that sense it's real." Indeed.

 

Today, the set up for the S&P 500 is: TRADE (1,065) and TREND is positive (1,007).   The Research Edge quantitative models have 9 of 9 sectors in the S&P 500 positive on TREND and 8 of 9 sectors are positive from the TRADE duration.  Yesterday, Financials broke trade.           

 

The Research Edge Quant models have 0.5% upside and 1.5% downside in the S&P 500.  At the time of writing the major market futures in the U.S. are lower.

 

The Research Edge MACRO team.

 

US Strategy – Financials Breaking Down - S P500

 

US Strategy – Financials Breaking Down - s pperf

US Strategy – Financials Breaking Down - s plevels

 


Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more

Neurofinance: The Psychology Behind When To Sell A Bull Market

"Most momentum investors stay invested too long, under-reacting and holding tight after truly bad news finally arrives to break the trend," writes MarketPsych's Richard Peterson.

read more

Energy Stocks: Time to Buy the Dip? | $XLE

What the heck is happening in the Energy sector (XLE)? Energy stocks have trailed the S&P 500 by a whopping 15% in 2017. Before you buy the dip, here's what you need to know.

read more

Cartoon of the Day: Hard-Headed Bears

How's this for "hard data"? So far, 107 of 497 S&P 500 companies have reported aggregate sales and earnings growth of 4.4% and 13.2% respectively.

read more

Premium insight

McCullough [Uncensored]: When People Say ‘Everyone is Bullish, That’s Bulls@#t’

“You wonder why the performance of the hedge fund indices is so horrendous,” says Hedgeye CEO Keith McCullough, “they’re all doing the same thing, after the market moves. You shouldn’t be paid for that.”

read more

SECTOR SPOTLIGHT Replay | Healthcare Analyst Tom Tobin Today at 2:30PM ET

Tune in to this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more