GROWTH AND VALUE STOCKS ARE BOTH WEAKENING -- CONSUMER DISCRETIONARY AND TECH SPDRS HAVE FALLEN TO THEIR 200-DAY AVERAGES TO LEAD MARKET LOWER -- FINANCIALS HAVE ALSO LOST GROUND -- BANK INDEX FALLS TO NEW 2018 LOW
GROWTH AND VALUE STOCKS ARE BOTH FALLING... One of the explanations for this week's big selloff is that the upside breakout in bond yields is hurting growth stocks. That's been especially true of consumer discretionary and technology stocks which suffered the biggest losses this month. Chart 1 shows the Consumer Discretionary SPDR (XLY) falling all the way to its 200-day moving average. The falling purple line shows its weaker performance versus the S&P 500 (XLY:SPX ratio) since the start of the month. Chart 2 shows the Technology Sector SPDR (XLK) in a similar situation. Its relative strength ratio (purple line) has dropped as well. As a result, the Russell 1000 Growth Index has lost -7% since the start of the month versus a -5% drop in the S&P 500 Index. Needless to say, the test of their 200-day average is a very important event for them and rest of the stock market. The other side of that scenario is that money should start rotating into value stocks which have been left behind for most of this year. And that should keep the stock uptrend intact. So far, however, we're not seeing that happening. That's especially true of financial stocks, and banks in particular. [Updated Charts: Charts 1 and 2 show both SPDRs closing below their 200-day averages today. All of the following charts have also been updated after the close to reflect today's closing prices].
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Chart 1
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Chart 2
FINANCIALS AREN'T SHOWING MUCH BOUNCE ... While cyclicals and techs are the two biggest parts of the growth universe, financials are the biggest part of the value group and represent nearly a quarter of their weight (23%). And they're not exactly acting like new market leaders. That's particularly discouraging considering that financial stocks are usually the biggest beneficiaries of rising bond yields. Chart 3 shows the Financial SPDR (XLF) falling this week to the lowest level in three months, and trading well below its 200-day moving average. They fell less than the rest of the market, but they did fall. The same is true of bank stocks. Chart 4 shows the KBW Bank Index ($BKX) trading at new low for the year in afternoon trading. Some big banks will start reporting earnings tomorrow (Friday). They'd better be good.
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Chart 3
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Chart 4
RUSSELL 1000 VALUE ISHARES ARE TRADING BELOW 200-DAY AVERAGE ... Growth and value stocks are both testing important chart support. Chart 5 shows the Russell 1000 Growth iShares (IWF) sitting right on their 200-day moving average (red line). That's an important test. Value stocks are undergoing an important test of their own. Chart 6 shows the Russell 1000 Value iShares (IWD) already trading below its 200-day average in afternoon trading. The IWD has held up better than growth stocks and the S&P 500 this month, but they're not attracting much new buying. They may be close to breaking down themselves. Which raises a key question. If growth stocks continue to weaken, is it realistic to expect value stocks to keep the market uptrend intact? On that point, Chart 6 is not very encouraging. Neither are the charts of financial stocks. A number of major market indexes are also in danger of falling below their 200-day lines. If they do, the 2018 stock uptrend could be in jeopardy. [Update: All major U.S. stock indexes ended the day below their respective 200-day averages. Tomorrow could be a pivotal day. A Friday close below their 200-day lines would be a more negative chart signal for the market].
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Chart 5
