-While many stocks are close to or making new highs, the XLF and many components are not.
-A few financials are flashing severe warnings.
-Most are set to revisit December lows if not lower.
The financial sector is a key component of the stock market and one we track regularly. Several of the largest names in the SPDRs Select Sector Financial ETF (XLF) are also some of the biggest components of the S&P 500. Many financial names act as market leaders, and weakness there can be a big warning.
In this video we examine some of the most prominent and also most concerning charts we see in this crucial area of the market:
While there is some potential for near-term extension nominally higher in XLF, in either sub-wave count the Risk:Reward has clearly skewed to the downside. Today certainly was at least a "bow-shot," but it will take a more sustained break of the 27 region to start to confirm a top.
At $377B there only a handful of stocks with a larger market cap than JPMorgan Chase (JPM). For it to have such a clear ABC corrective wave structure up from the December low is not a healthy sign for any kind of sustainable rally. Aside from the Elliott Wave count other technicals are signaling weakness in a way that could see a more rapid break-down when it starts.
Berkshire Hathaway (BRK.B) is not only another huge mega-cap holding within XLF, but it is also one with a very clear corrective abc structure up from its December low. If the 206 region holds here it can head up once more and even make a nominal new high over 223s, but below 203 and this harsh drop will look more like the initiation of the next C-wave down 180-160s.
The credit card companies, American Express (AXP) and Visa (V) (covered in the video but MasterCard (MA) counts this way too), are among stocks that have managed to push to new highs over that of 2018, and indeed these different from most big banks are even well over their pre-financial crisis highs from 2007. But that does not make them bullish here.
AXP might try to stretch a bit higher toward the 161.8% Fibonacci level for Primary Wave 3 but it is clearly completing a Minor degree 5th wave off the 2016 lows finalizing the Intermediate degree (5) of P.3. It has a clear 5up move up from December proportionate to the first move off the February 2016 low. V might try to extend even more as discussed but it is actually completing a Primary Wave 5 and due for an even more significant correction.
Lastly we looked at the premier firms of Goldman Sachs (GS) and Morgan Stanley (MS). These are two of our "flagship" stocks for banks that potentially topped not in a Primary Wave 3 but in a Primary degree ABC up from 2009 lows as a cycle b-wave top and are just starting longer drawn-out downward slides. Think Deutsche Bank (DB) circa July 2010. We do not focus much on fundamentals, but we could see MS or GS getting very tangled up in a possible "Black-Swan" event.