Friday, June 9, 2017

Bank Shot-Financials Outperform (XLF)

The ETF closed the day up 1.89% at $24.29 (+0.45)
From Risk Reversal:
This week Congress passed legislation to roll back post-financial crisis legislation. Next week theFed will raise short term 25 basis points. Bank stocks after massively underperforming the broad market since March 1st bounced 3%, registering its best weekly performance since late April. It’s my belief that the relative weakness of the last few months is very much in sync with the undoing of the post-election strength of the Trump Trades, like the U.S. Dollar Index roundtripping most of its move since Nov 9th, U.S. Treasury Yields doing nearly the same, energy stocks, commodities, material stocks etc. I think Bank Stocks have completed the first leg of this move and Q2 results / Q3 guidance will confirm weak trends, coupled with a flat yield curve limiting an expected increase in net interest margins.

The technical set up for the XLF, the S&P Financial etf, primarily made up of bank stocks is at a curious spot. $23 has been staunch support since mid-December, but a failed breakout of the nearly 3-month range and a retest of support might complete what looks like an obvious head and shoulders top pattern: