Financials have significantly lagged the market since the bottom in February and the gap might be closing as market sells off while strong move in financials indicates further strength ahead, possibly even longer term as interest rate environment is changing and yield curve might reverse and steepen up again.
I have been writing about Deutsche Bank for about six months now. My first post, back in October 2015, showed how DB, then trading above $29/share, was sitting on multi-decade support. The chart was showing warning signs that bad things were on the horizon, particularly if it broke below $25.
Low and behold, price did indeed break below $25 which I noted in my December 11, 2015 post titled Deutsche Bank: Something is Seriously Wrong. I showed again not only how broken the long-term chart was, but how DB had grossly underperformed relative to its financial peers (re-posted here):
In my post of December 29, 2015, I stressed the importance of the Financials ETF (XLF) in, potentially, propelling the SPX to an increase of 5-6% for 2016.
You can see from the Daily ratio chart below of XLF:SPX, that price weakened considerably afterwards and fell to new lows not seen since 2012. Price is attempting to stabilize above that low, but all three indicators are still in downtrend and display new “SELL” signals, and price action is still under the bearish influence of the Death Cross formation of the moving averages.
If price drops and holds below near-term support of 0.0105, we could see a significant drop in the SPX, likely to new lows for the year, as I mentioned on April 3.
Ahead of the FOMC decision tomorrow morning, the banks are moving in anticipation of a rate hike that is expected to improve– perhaps significantly– their net-interest profitability.
Be that as it may, Bank of America Corporation (BAC) remains poised to enter a new upleg off of its Aug-Sept spike lows in the vicinity of 14.60, and to emerge from a larger, near-2 yr sideways, bullish-digestion period, the result of which, has the potential to thrust BAC to 19.50-20.00, in route to 23.00-25.00, thereafter.
Shortly after closing out the previous FAS short trade for a 29% gain in exactly one month, with a nearly perfectly timed exit on the morning the big August 24th meltdown, FAS (3x long financial ETF) was once again posted as a new short setup in this post last week & went on to trigger an entry later that day when XLF dropped below 22.95.