In spite of the eye-rolling rally on Monday, the financial sector (by far my biggest exposure in my live positions) continues to weaken. Here are the regional banks, by way of the ETF symbol KBE, which has (1) broken its key supporting trendline (2) is getting within spitting distance of completing a topping pattern, assuming it breaks under that horizontal.
The other big bank ETF, symbol XLF, has proved to be more robust, but its series of “lower highs” is still intact, and it, too, has a clean horizontal which, if broken, will constitute a completed top.
I was monkeying around with layered charts (naturally) and was rather intrigued by the item I constructed below. The red chart is the long-term continuous contract on /ZB (the U.S. T-Bond futures) and the blue line is the XLF. Over a span of decades, they certainly seem to increase their distance (like right now, a new record) and then gravitate back toward one another. Seems to me we are poised for a major gravitational pull to reconcile this chasm.
Just for the hell of it, I put together a custom-symbol chart using /ZB and a multiple of XLF, and I came up with this item below. Suffice it to say that bonds are extremely depressed relative to financial stocks.
And what’s driving all this weakness? I suspect the inverted yield curve has a lot to do with it. After all, it kind of messes up the entire banking industry’s “borrow short, lend long” strategy of making money.
