Financials Breaking Out: Can They Hold?

On our Macro Morning Call (available now, daily, by podcast – email ) last week, we talked about contrarian moves that might catch people off-side’s in the first few weeks of the new year. One was a final meltup in the SP500.  Another was a potential reversal (to the upside) in the US Financials.


Today we are seeing the Financials (XLF) play catch-up with the SP500. The XLF is up +0.75% in a flat tape, outperforming all of the sectors in our 9 sector SP500 Risk Management model.


Most importantly, the XLF is breaking out above our intermediate term TREND line. That line = $14.65/share. The question now is, can this mean reversion move in the XLF hold its gains? If it can, into and out of Friday’s employment report (ahead of JPM kicking off the sector’s earnings next week), this will get very interesting, very quickly.


Don’t forget that the XLF has underperformed the SP500 by 1100 basis points since it put in an intermediate term peak in mid-October. There are plenty of reasons to fear the financials, not the least of which are Macro Themes we’ve been beating on like Re-Regulation.  Today, consensus favorite, Meredith Whitney, is trying to add to well placed fears in the money centers and brokers by taking down her numbers again in Goldman Sachs.


Last month, we launched coverage of the Financials sector with a bearish immediate term view on the money center banks and a bullish view on Capital One (COF). In the long term however, Josh Steiner and I think that the financials should hold their long term TAIL of support (outlined in the chart below at $12.16).  


In between now and then, the best risk-managed approach to this sector will be to let real-time prices tell you where to bob and weave. Watch this $14.65 line in the XLF very closely.



Keith R. McCullough
Chief Executive Officer


Financials Breaking Out: Can They Hold? - XLF


7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more