TREASURY YIELDS FOLLOW EUROPE HIGHER -- THAT'S HELPING FINANCIAL STOCKS -- LEADERS INCLUDE JP MORGAN, SCHWAB, AND METLIFE -- TECHNOLOGY SELLING RESUMES -- SEMIS ARE ALSO FALLING -- THAT'S STARTING TO TAKE A TOLL ON THE S&P 500
TEN-YEAR TREASURY YIELD HAS A STRONG DAY ... For the first time in weeks, bond yields are climbing. Chart 1 shows the 10-Year Treasury Yield climbing 7 basis points to the highest level in two weeks. A lot of that is following even bigger gains in Europe. French and German 10-year yields are up 14 and 13 bps respectively. More hawkish comments from the ECB helped boost eurozone yields. Yields may also be getting some support from a bounce in base metals and energy prices. Rising Treasury yields are lifting financial shares (while hurting utilities). Banks, brokers, and life insurers are having a strong day.
(click to view a live version of this chart)
Chart 1
FINANCIALS ARE DAY'S STRONGEST SECTOR... As usually happens, financial stocks jump when bond yields are climbing. And they're doing that today. Chart 2 shows the Financial Sector SDPR (XLF) climbing 1%. The XLF scored a bullish breakout in early June when it exceeded its April/May highs. After a modest pullback, the XLF is back above that breakout point. The XLF/SPX relative strength ratio (top of chart) also achieved an upside breakout three weeks ago and is still climbing. Banks may be getting some additional lift from passing last week's first round of the Fed stress test. A second round is expected tomorrow (Wednesday). It's believed that could allow banks to increase dividends and may add to their appeal.
(click to view a live version of this chart)
Chart 2
JP MORGAN, SCHWAB, AND METLIFE ARE FINANCIAL LEADERS... Chart 3 shows J.P. Morgan Chase (JPM) helping lead bank shares higher today. Chart 4 shows Charles Schwab (SCHW) leading brokerage stocks higher. And Chart 5 shows Metlife (MET) leading life insurers. Most other stocks in those three leading groups are also having a strong day. Technology stocks, meanwhile, are falling again. There may be a link between those two events.
(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
TECHNOLOGY SELLOFF RESUMES... You may recall a big drop in technology stocks earlier in the month which took place in heavy trading. That selloff is starting to get even worse. Chart 6 shows the Technology Sector SPDR (XLK) tumbling today after suffering a downside reversal yesterday. That puts the XLK right back at its 50-day average. Technical odds of that support line holding again don't look very good. Internet and semiconductor stocks are leading today's decline. Chart 7 shows the PHLX Semiconductor ETF (SOXX) in even worse condition. Both of their relative strength lines (top of charts) are also falling. You may also recall some money coming out of techs three weeks ago rotating into in value groups like financials and healthcare. That rotation appears to be continuing. Technology is the month's second weakest sector (behind energy), while healthcare and financials are the month's two strongest (6% and 3% respectively). That rotation into cheaper parts of the market has provided some market support over the last month in the face of tech selling. But the S&P 500 is starting to look more vulnerable to profit-taking.
(click to view a live version of this chart)
Chart 6
(click to view a live version of this chart)
Chart 7
S&P 500 IS LOSING MOMENTUM ... Chart 8 shows the S&P 500 starting to lose some ground. So are its short-term momentum indicators. The 14-day RSI line (top of chart) is in danger of falling below 50 for the first time in more than a month. Its daily MACD lines (overlaid over the price bars) have already turned negative. Also disturbing is the fact that the June peak in the MACD lines fell well short of their early March peak. That type of "negative divergence" is usually a negative warning. Most sectors are in the red today. The only two in the black are financials and energy. It's hard to imagine the S&P 500 not being negatively effected if the rout in technology shares continues.
