Finance Sector Leads and Regional Banks Come to Life
2012 is ending with a bang for banking stocks as sentiment towards this sector improved significantly in December. Perhaps the big banks are looking forward to open-ended quantitative easing in 2013. The chart below shows the Finance SPDR (XLF) breaking above its autumn highs to record a 52-week high. In addition, the price relative (XLF:SPY ratio) recorded a 52-week high as XLF led the market higher. On the price chart, broken resistance in the 15.75-16.25 area turns into the first support zone to watch on any throwback (pullback). XLF is a bit overbought after a 10% advance since mid November, which makes it ripe for a pullback or consolidation. However, any weakness would be deemed a correction within a bigger uptrend.
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Regional banks are not as strong as the big banks, but the Regional Bank SPDR (KRE) came to life with a triangle breakout. KRE surged in mid November, consolidated with a small triangle (pennant) and broke resistance with a big move. This is a bullish development and the triangle now marks a support zone. The indicator window shows the price relative (KRE:SPY ratio) surging above the late October trend line.
Merry Christmas and Happy New Year!!
--Arthur Hill CMT
