FINANCIAL SPDR NEARS TEST OF NOVEMBER HIGH -- CITIGROUP AND WELLS FARGO HAVE ALREADY BROKEN OUT -- - HUNTINGTON BANCSHARES AND PNC LEAD REGIONAL BANK HOLDERS HIGHER -- INSURANCE BREAKOUTS INCLUDE METLIFE, LINCOLN NATIONAL, AND PRUDENTIAL

FINANCIALS CONTINUE TO SHOW NEW LEADERSHIP... Arthur Hill and myself have been writing over the last month about new signs of leadership in the financial sector. Over the last week, financials have been the market's strongest group (after being the weakest since the spring). Chart 1 shows the Financials SPDR (XLF) moving up toward its November high. Its RS line (gray solid line) is starting to bounce for the first time since April. Both the price bars and RS line need to clear their November high to start a new uptrend. It would also help if the 50-day average closed back over its 200-day line. I suggested last Thursday that new bank buying might be tied to the easing of debt problems in Europe. Surging bond yields may be helping as well. A steeper yield curve (when longer term yields rise faster than shorter term) works to the banks favor since they borrow short (pay interest) and lend long (through loans). I'm going to revisit the group today and put some individual names on stocks that are leading financial stocks higher. Chart 2 shows Citigroup already trading at an eight-month high. Its relative strength (RS) line has turned up as well. Wells Fargo is breaking out today. Chart 3 shows WFC trading above its November high with a rising relative strength line.

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Chart 1

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Chart 2

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Chart 3

REGIONAL BANK LEADERS... Regional banks are showing financial leadership as well. Chart 4 shows Bank Regional Holders (RKH) right up against their November high. Needless to say, a close above that level would be positive. Charts 5 and 6 show two regional bank leaders that have already broken out. Huntington Bancshares is trading at a new seven month high with a rising RS line (Chart 5). Chart 6 shows PNC reaching a new four-month high.

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Chart 4

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Chart 5

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Chart 6

BUYING INSURANCE... Insurance stocks are on the rise as well. Chart 7 shows Dow Jones US Insurance iShares (IAK) rallying toward their November high. Two insurance stocks have already achieved bullish breakouts. Chart 8 shows Metlife trading at a seven-month after breaking through resistance along 42. [My November 4 message showed MET hitting a new three-month high]. Lincoln National has broken out as well. Chart 9 shows LNC clearing its second half highs and 200-day average on rising volume. Chart 10 shows Prudential Financial clearing its 200-day line and its November high. Financial stocks may represent the best value in the stock market at the moment. That's especially true of brokerage stocks.

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Chart 7

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Chart 8

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Chart 9

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Chart 10

BROKERS OFFER GOOD VALUE ... Chart 11 ranks four major financial ETFs in order of relative strength since September 1. Brokers came in first (22%), regional banks second (19%), the financial SPDR third (14.9%), and insurance fourth (14.6%). While all are rising, it's normally a good sign for the group and the market as a whole when brokers are leading it higher. That's because brokerage stocks have long been considered a barometer of the mood on Wall Street and the stock market. And they may represent very good value at the moment. Chart 12 plots a relative strength ratio of the Broker-Dealer iShares (IAI) versus the S&P 500 (flat black line) since 2008. The blue line shows brokers underperforming during 2008 (as the market fell), outperforming during 2009 (as the market rose) and underperforming this year. The good news is that the brokerage RS line is now in major support along its 2008 low and just starting to rise. That may carry good news for brokerage stocks which appear to be a relative bargain. And any upside leadership coming from brokers (and financials in general) should carry a positive message for the market as a whole.

Chart 11

Chart 12