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Good morning, everyone, and welcome to Wednesday. In spite of another everything-is-green nighttime session, I continue to beat my XLF drum, as I consider it a critically important chart to track. This ETF, which represents financial stocks, continues to grind its way through what I contend is a momentous (albeit glacially-slow) topping pattern.
The market has been going pretty much vertical since Friday, and today’s rally is a little mysterious. As far as I can tell, there’s no news – – none – – to explain the push higher (unless one thinks that President’s declaration that he’d be OK doing away with “spring forward/fall back” every year is bullish).
I think it’s useful to maintain a bit of paranoia about what could happen. Let’s focus on financials. I’d say there are two important lines in the sand to watch with the ETFs below. The first, the S&P bank ETF symbol KBE, has a neckline at 45.99 (if you’re having any trouble making out the tiny digits I’ve put on the chart below). That neckline constitutes the completion of an inverted H&S pattern which, in that instance, would send the price flying toward the green trendline.
If I were to pick out the Top Three Charts to follow in the coming year, one of them would absolutely be the financials, symbol XLF. We’re continuing to break down nicely on this, and of particular import is the price gap at $26.23 which took place this week.
Today is one of the godawful boring days in the “market”. As I’m typing this, the ES is up a staggering 0.06%. I’m having an OK day, and old friend Morgan Stanley is, slowly but surely, continue to tiptoe its way lower. I’m going to be quite inactive trade-wise today, focusing instead of more SlopeRules improvements.
I follow financial stocks closely, and one which stands out to me as a particular under-performer is Cigna (symbol CI) shown here.
From HedgeFundTips.com: In 2007 the Financial Accounting Standards Board (FASB) made an accounting change – referred to as FAS 157. FAS 157—also known as “mark-to-market,” or “fair value accounting” was primarily responsible for putting Lehman Brothers into bankruptcy and triggering the dominoes that would subsequently fall in concert. The assets didn’t change materially, the “required” accounting of them did. This well-meaning, but utterly ham-handed effort was largely responsible for precipitating the Great Financial Crisis of 2008-2009. You can see the correlation on the chart above between the time FASB implemented the new rule (starting the crash), and when they reversed their mistake (market bottom in 2009). There is no coincidence in this timing.
Another day, another screen full of green.
One by one, the “overhangs” to the market are disappearing. The last one, and by far the largest, is the China/US deal. All signals seem optimistic on that front, and no doubt there will be SOME kind of agreement put together in the weeks ahead.
One thing of aid to the bulls recently is that the financial sector burst out of a range it has been in for much of the year. This clears the way for a continued assault toward the highs last seen on December 3rd.
