REGIONAL BANKS LEAD MARKET HIGHER -- FIFTH THIRD BANCORP IS PERCENTAGE LEADER -- CITIGROUP BOUNCES OFF 200-DAY LINE
FINANCIALS ARE DAY'S STRONGEST SECTOR ... Judging from today's strong surge in the financial sector, it seems that the market is encouraged by the January core CPI inflation rate of 0.2% and less concerned about the threat of rising interest rates. That would explain today's drop in bond yields and bounce in bond prices. The most impressive indication, however, is seen in the strong action of financial stocks -- and regional banks in particular. While all sectors (with the exception of energy) are rising today, the Financials Sector SPDR is the day's strongest. The weekly bars in Chart 1 show the XLF nearing a new record high. Its relative strength line shows new leadership in the financial group since last spring. A lot of that, however, came from brokers and insurers. Most of today's buying is coming from regional banks.
Chart 1
Chart 2
REGIONAL BANK ETF HITS NEW HIGH ... While the entire banking group is strong today, most of the buying is coming in regional banks. As a result, the Regional Bank Holders (RTH) are the day's strongest group ETF. The weekly bars in Chart 2 show the RTH hitting a new record high today. Their relative strength line turned up during October and they've been market leaders since then. The strongest stock in the financial group is Fifth Third Bancorp. Although it's been a laggard in the bank group, Fifth Third Bancorp is today's biggest percentage gainer in the financial sector (+4%) and one of the top five S&P 500 performers today. The daily bars in Chart 3 show the stock testing its 200-day moving average. The second best performer is Northern Trust Corp. which is trading over both moving average lines. Several regional bank stocks are at or near new 52-week highs including Wachovia, US Bancorp, and State Street Corp.
Chart 3
Chart 4
CITIGROUP BOUNCES OFF 200-DAY LINE ... Citigroup is one of the big money center banks and is not one of the day's top gainers. But it is benefiting from the bank buying enough to keep it over its 200-day moving average line. [Here's another example of why it's important to keep an eye on moving averages]. The stock hasn't been a particularly good performer of late. But this is a logical spot for it to start doing better.
Chart 5
HOW TO BUY INTO A GROUP ... I've been asked to give more specific guidance on how to participate in groups moves that I write about. Actually, I do that in most of my articles. That's why I usually show an Exchange Traded Fund (ETF) that matches the group I'm writing about. Charts 1 and 2 show two ETFs that can be bought to participate in the financial rally (Chart 1) or the regional bank rally (Chart 2). I do that whenever there's an ETF available for any group I'm writing about (or one that is liquid enough to buy). Where there's no ETF available, an investor can buy a sector mutual fund that matches the industry group or sector. The third choice is to buy one or more individual stocks in the group.
