Breaking Down Banks Breaking Down

David Keller

In a recent appearance on Bloomberg Television, I pointed out that the Financial stocks (NYSEARCA:XLF) have the most to prove leading into earnings season.

A review of the charts shows there is plenty to be concerned about, from the big banks to the asset managers.

While megacap Technology (NYSEARCA:XLK) and Consumer Discretionary (NYSEARCA:XLY) names have been pushing the market higher, the Financials sector has seen a short-term pattern of lower highs and lower lows.

Here’s the YTD performance of these three sectors.  Note how the three traded in a similar fashion in the first quarter, before their paths clearly diverged in the second quarter.

Performance Chart – $XLF vs $XLK vs $XLY

xlf financials sector performance vs stock market chart_july 2018In fact, the charts of some of the larger banks have been disturbingly weak, with names like Goldman Sachs (NYSE:GS) and Bank of America (NYSE:BAC) breaking down through key support levels. Note how BAC has just recently broken down through its 200-day moving average.

$GS Goldman Sachs Stock Chart

goldman sachs stock chart gs decline lower financials_july 2018$BA Bank of America Stock Chart

bank of america stock chart bac decline lower financials_july 2018Many of the asset managers have seen similar patterns.  Here we have State Street Corp (STT) recently violating its 200-day moving average and nearing another new low this week.

$STT State Street Corp Stock Chart

state street bank stock chart stt decline lower financials_july 2018There are some bright spots in the Financial sector.  The exchanges come to mind, with many in established uptrends and consistently breaking to new highs.

S&P Global Inc (SPGI) comes to mind as the type of name that looks more like a Consumer or Tech name than a Financial stock.  SPGI reached another 52-week high this week, and remains above two upward sloping moving averages.

s&p global inc spgi stock chart bullish trend higher banks_july 2018As the big banks begin to report earnings, the weight of the evidence is clearly bearish on the short-term charts.  Until we see some sort of accumulation on the charts, we have a pattern of lower lows and lower highs with no end in sight.

Twitter:  @DKellerCMT

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