I know I have been harping on the banks but sometimes I just can't help myself. It amazes me that there is not constant chatter-of the bearish kind-about this group. We've seen some creep in but not the sort that we'd see if, say, Apple (AAPL) or Amazon (AMZN) was down 4% in a week.
So let's revisit the chart of the Bank Index. That rally in mid-September was a failing high (as opposed to the ETF everyone favors, (XLF) --there is a reason I use the BKX , it's purer and tells what I think is the real story) and the subsequent collapse. There is, as you can see on the chart quite a bit of support as it heads into the $104 area. I expect a bounce from there.
But let's suppose it doesn't bounce from there. Wouldn't a break of $104 be exhaustive rather than fresh? A break of $104, after having fallen from $110 without a breather, would look exhaustive to me and should lead to a snap back rally. Holding $104 and rallying to say $107-$108 where resistance comes in would actually be more bearish, wouldn't it? It would give the Bank Index the energy to break $104 as a fresh break next time down, almost like it got a running start.
Take a look at the chart of ITB, an ETF to be long the home builders. Yes it looks awful (and should measure to $33-ish ultimately). But see that plunge in July, the one that occurred over the course of a week (arrow on the chart). Should ITB have broken then it would have been exhaustive but instead it made feeble rally attempts for another month, almost gathering energy for the break that was to come a week ago.
If you take some time to read the new low list you would notice that it is littered with financials, banks, home builders and auto related stocks. In fact, if we take out all of those bond related names, like the BlackRock (BLK) and Nuveen funds, and focus on the common stocks only, we find that Friday had 70 stocks on the new low list. A reminder, the S&P is kissing the highs.
But since this market has been a story of group rotation and not the indexes, let me visit the chart of Crude Oil, where much of the positive action has been of late. It's a decent chart, one that measures to $74-$75, after having broken out at $71 a few weeks ago. Yet I must report that the Daily Sentiment Index (DSI:NYSE) is now 94. It was 96 in January (red arrow).
Crude may have a little bit left in the tank but rarely have we seen a breakout and a fresh new move upward when the sentiment is so bullish. Remember 94% on DSI means a mere 6% are bearish.
I do not know how much longer the group rotation game can go on but there are two ways to resolve it. Either everyone decides to participate at the same time or the indexes eventually crack. I always prefer the indexes to crack because that's what brings about bearishness and high bearishness leads to better buying opportunities. But the market doesn't care about my preferences.