FALLING BOND YIELDS HURT BANKS -- SAFE HAVEN BUYING OF TREASURIES, GOLD, AND YEN SHOW A CAUTIOUS MOOD -- HEALTH CARE SPDR RISES TO TEST 200-DAY AVERAGE -- ENERGY SPDR TESTS 40-WEEK AVERAGE -- MACD LINES LOOK POSITIVE
FALLING BOND YIELDS HURTS BANKS ... Treasury bond yields continue to drop. Chart 1 shows the 10-Year Treasury Bond Yield touching the lowest level since February. Part of that is buying of Treasury bonds in an overbought stock market. Part of it is also historically low sovereign bond yields in Europe and Japan. Falling bond yields have been supportive to dividend-paying groups like staples, telecom, utilities, and REITS. But they hurt financial stocks like banks, brokers, and life insurers which were among the market's weakest groups, and made financials the week's biggest loser (-3.6%). Chart 2 shows the KBW Bank Index ($BKX) ending the week below its 50-day average. The BKX/SPX ratio (red line) fell to a new low. Since financials are the second biggest sector in the S&P 500, selling in that group is weighing on the market.
(click to view a live version of this chart)
Chart 1
(click to view a live version of this chart)
Chart 2
SAFE HAVEN BUYING... Another sign of investor caution is recent buying of traditional safe havens. Chart 4 shows the Barclays 20+Year Treasury bond iShares (TLT) gaining ground. Chart 5 shows gold prices rising. Most dramatically, Chart 6 shows the Japanese yen continuing to surge. All three are safe haven assets that investors buy when they're nervous about global stocks.
(click to view a live version of this chart)
Chart 3
(click to view a live version of this chart)
Chart 4
(click to view a live version of this chart)
Chart 5
HEALTHCARE SPDR TESTS 200-DAY AVERAGE... Healthcare was the week's second biggest gainer (behind energy). Chart 7 shows the Health Care SPDR (XLV) testing its 200-day average. The XLV rally is being led by biotechs and pharmaceuticals. I suspect that some sector rotation is going on from overbought sectors into an oversold and more defensive healthcare sector.
(click to view a live version of this chart)
Chart 6
ENERGY SPDR TESTS 40-DAY AVERAGE ... Energy stocks gained 2% during the week and were the market's top sector. That was based on an 8% rise in the price of oil. The weekly bars in Chart 8 show the Energy SPDR (XLE) testing its 40-week moving average for the third time since its peak in 2014 (see arrows). That's an important test for it and the rest of the market. The direction of energy stocks does have an influence on the direction of the stock market. The weekly MACD bars (below chart) have already exceeded their fourth quarter highs and appear to be bottoming. I take that as an encouraging sign that energy stocks, and the price of oil, have bottomed. A close above its 40-week line (200-day average) would be further confirmation of that more positive view.
(click to view a live version of this chart)
Chart 7
S&P 500 RALLY STALLS... Chart 8 shows the S&P 500 trading just below a resistance line drawn over its July/November highs (down -1.2% on the week). Its 14-day RSI line (above chart) is backing off from overbought territory at 70. And its daily MACD lines (below chart) have turned negative for the first time since January. Both of which suggest that overbought U.S. stocks may be vulnerable to short-term profit-taking. The SPX, however, remains above its 200-day moving average.
