BANKS ARE LEADING FINANCIAL SECTOR HIGHER -- BANK LEADERS INCLUDE CITIGROUP, BANK OF AMERICA, AND JP MORGAN -- FIVE-YEAR TREASURY YIELD CLEARS 50-DAY AVERAGE -- 7-10 YEAR TREASURY BOND ISHARES ARE TESTING SUPPORT -- UTILITIES WEAKEN ALONG WITH BONDS
FINANCIAL SPDR CLEARS 50-DAY AVERAGE... Financial stocks are helping lead the market higher today. Chart 1 shows the Financial Sector SPDR (XLF) trading at the highest level in five weeks after clearing its 50-day average. Its relative strength ratio (top of chart) continues its September rebound. Banks are leading the XLF higher, followed by investment services and life insurers. Chart 2 shows the KBW Bank Index ($BKX) trading just above its 50-day average after reclaiming its 200-day line last week. All three groups are benefiting from bouncing bond yields (more on that shortly).
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Chart 1
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Chart 2
CITIGROUP, BANK OF AMERICA, AND JP MORGAN ARE TURNING UP... Several big banks are leading the rally. Chart 3 shows Citigroup (C) rising to the highest level in eight years. Chart 4 shows Bank of America (BAC) trading well above its 50-day line and headed toward a test of its August high. Chart 5 shows J.P. Morgan Chase (JPM) also clearing its 50-day average.
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Chart 3
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Chart 4
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Chart 5
5-YEAR TREASURY YIELD TURNS UP... Rising interest rates are the main factor driving financial stocks higher today. Chart 6 shows the 5-Year Treasury Yield ($FVX) climbing to a five-week high after clearing its 50-day average. The FVX has also broken through a falling trendline extending back to early July. Rising bond yields in foreign markets like Canada, Britain, and Germany are helping lift Treasury yields. So is the jump in the August CPI which has boosted expectations for a December rate hike by the Fed. Relief from hurricane damage is also helping boost insurance stocks. That's bad new for bond prices and utilities.
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Chart 6
BONDS AND UTILITIES WEAKEN... Bond prices fall when yields are rising. And they're doing that today. Chart 7 shows 7-10 Year Treasury Bond iShares (IEF) heading down for a test of its 50-day average and, more importantly, a rising support line drawn under its March/July lows. Falling bond prices usually hurt utility prices which are viewed as bond proxies. And they're doing just that. Chart 8 shows the Utilities Sector SPDR (XLU) losing more ground following its peak of a week ago. The falling red line (XLU/SPX ratio) shows the XLU losing ground against the S&P 500.
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Chart 7
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Chart 8
CHIPS STOCKS AND MICROSOFT LEAD NASDAQ TO NEW HIGH ... Chart 9 shows the Nasdaq Composite Index joining the Dow and S&P 500 in new record territory today. Semiconductors are having another strong day following Friday's bullish breakout to a new high. Today's chip leaders include Advanced Micro Devices, NVIDIA, Micron Technology, Applied Materials, and Lam Research. Chart 10 shows software giant Microsoft (MSFT) also hitting a record high today. And not surprisingly, the Technology SPDR (XLK) is now in record territory. It's a good sign for the market when financials and technology stocks are both leading it higher. That makes for another "risk on" day as gold and other safe havens continue to pull back.
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Chart 9
