Why Aren’t More People Worried About the Banks?
The Semiconductor stocks remain oversold and getting worse. Could the bank stocks be next?
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The Market
We already know where I stand on the SOX and tech stocks. Thus far I am quite wrong. Yet I can’t stop seeing that massive oversold condition.
Rather than reiterate all the indicators on the SOX and Nasdaq I want to talk about the others. My contention has been that August would see the others catch down to tech. Today did not dissuade me of that notion. I think the action is awful but so is sentiment. The DSI for Nasdaq fell from 43 yesterday to 30 today.
While they did not sell the others with wild abandon they did sell the banks and industrials. I have been bearish on the banks for a few weeks now. For me it started with Citigroup (C). We had a nice trade in the stock coming off that May low but it had reached its target in the mid 140s and seemed stuck so we exited. I would call myself neutral at that point.
Then Citi had that poor reaction to earnings and snuck just under the uptrend line. That’s when I turned bearish. All of a sudden everyone was selling tech and loving on financials/banks. It felt so much like the beginning of this year (sentiment wise, not action-wise).
Since then Citi had a minor bounce and is now back to 127, the low from two weeks ago. It’s got some support here but it feels like it’s the leader. Very few of the other banks/financials look like this. We looked at Goldman Sachs (GS) with a bearish eye two days ago.
The Bank Index itself still hasn’t broken anything but it did make a lower high earlier this week and seems vulnerable to that 177-180 area (the uptrend line will be around 177 next week). What I would note is that despite everyone loving banks over the last few weeks while tech got whacked, I saw no one even comment on the bank action today.
XLI, an ETF to be long the industrials, is dominated by Caterpillar (CAT) which is basically a semi stock at this point. But note the lower high it had this week. It is into the gap from June now and has support around 174, but this is not a great chart either.
Away from that, there are the bonds. Folks have gotten quite bearish on bonds and I can understand why. I will point out that I liked the Utes a while back but turned cautious on them about a week or so ago. I remain that way. For now. The DSI on bonds is 12. Another swift move higher in rates would probably take the DSI to single digits. And that would likely go hand in hand with the VIX which seems on the verge of ‘breaking out’ and thus getting jumpy.
New Ideas
I recommended General Dynamics (GD) in early June around 340 and it has done well but that action today has me moving to the sidelines and taking money off the table.
Today’s Indicator
The Volume Indicator sits at 49%. Perhaps if the others play catch down some more, this will get oversold (47% or lower).
Q&A/Reader’s Feedback
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I warmed up to Abbott Labs (ABT) back in late May and it had a lot of back and forth before it got going in the second half of July. I think it is overbought up here but it has a measured target in that 112-115 area.
I warmed up to GLD in late June when the DSI got to 10. Ever since I have said as long as it holds over 360 I would be a buyer in that area. Now I wait to see if it can cross that downtrend line but will continue to use a push under 360 as a stop.
Jabil (JBL) broke the uptrend line in mid July and that’s overall bearish. However look at that support in the 280-ish area. It ought to enjoy an oversold bounce.
