Financial stocks have been immensely disliked by investors relative to other options since the peak in late 2006/early 2007. If you look at the performance of financial stocks relative to the S&P 500 on a longer-term basis, the recent "surge" off the December 2011 lows is far from significant in the context of how far this sector has fallen. The XLF ETF would have to outperform the S&P 500 by 136% just to get back to "break even" relative to 2006/2007. Some other notes from the chart below:
We noted last week (see video) bullish developments in financials relative to the S&P 500. Below are some excerpts from a Yahoo Finance interview with Katie Stockton, chief market technician of MKM Partners:
After gaining 25% year to date, stocks in the financial sector have only just now become interesting to technical analysts.
Yes, the chartists are late to the party but their skepticism is not without merit. Stocks making up the Financial Select Sector SPDR (XLF) have been the whipping boys of the popular press and investors for the last 5 years; eliciting absolutely no sympathy whatsoever on the way. Even with 2012’s move, the XLF is still nearly 60% off the highs of 2007.
So why bother with the group now? According to Katie Stockton, chief market technician of MKM Partners, the reason is simple: the stocks just broke out, “not just on an actual basis but on a relative basis.” That means the financials are outperforming the broad tape, most tech, and certainly the defensive sector names.
Better still, the XLF is being driven not by one or two names but across most of the constituent members. “When you see a lot of breakouts over the 200 day, that’s when you can believe the move as being somewhat sustainable,” says Stockton.
To put some perspective around the weak relative performance of financials since late 2006, consumer discretionary stocks (XLY) would have to fall over 10% relative to the market to revisit 2006/2007 levels (see chart below). XLY probably has more upside in the months ahead, but financials offer a better "buy low, sell high" opportunity. If markets are mean reverting, financials have some significant catching up to do. If the recent breakout in financials fails, it would send up a yellow flag for all risk assets.
The comments and charts above speak to an intermediate to long-term time horizon. Even if the recent breakout in financials holds, pullbacks and corrections will occur from time to time.
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Copyright © 2010 Ciovacco Capital Management, LLC. All Rights Reserved. Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC (CCM). Terms of Use. This article contains the current opinions of the author but not necessarily those of CCM. The opinions are subject to change without notice. This article is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The charts and comments are not recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations are not predictive of any future market action rather they only demonstrate the opinion of the author as to a range of possibilities going forward. All material presented herein is believed to be reliable but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that Ciovacco Capital Management (CCM) considers to be reliable; however, CCM makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change and readers are urged to check with tax and investment advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CCM would like to thank StockCharts.com for helping Short Takes create great looking charts Short Takes is proudly powered by WordPress . Entries (RSS)
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Copyright © 2010 Ciovacco Capital Management, LLC. All Rights Reserved. Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC (CCM). Terms of Use. This article contains the current opinions of the author but not necessarily those of CCM. The opinions are subject to change without notice. This article is distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. The charts and comments are not recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations are not predictive of any future market action rather they only demonstrate the opinion of the author as to a range of possibilities going forward. All material presented herein is believed to be reliable but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that Ciovacco Capital Management (CCM) considers to be reliable; however, CCM makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change and readers are urged to check with tax and investment advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. CCM would like to thank StockCharts.com for helping Short Takes create great looking charts Short Takes is proudly powered by WordPress . Entries (RSS)
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