The worse-than-expected Jobless Claims number Thursday (211k vs. 195k expected) caused a big Treasury rally but failed to lead stocks higher, given the big decline seen in bank stocks led by $SIVB and $SI.
S&P fell ~2% on the day, and broke last week’s lows near 3928. DJIA also broke down to the lowest levels of the year. However, $QQQ showed positive divergence and failed to show a similar move back to new monthly lows, which is a positive.
While the decline in Financials looks quite serious, other sectors like Technology and Industrials which had shown above-average strength over the last month, were not nearly as adversely affected.
Breadth finished at greater than 4/1 negative. However, volume flowed at a nearly twice as heavy a rate into Declining vs Advancing issues, registering an Arms Index (TRIN) at 1.9. Readings above 2.0 normally signal capitulation that translate into lows being right around the corner.
Overall, my cyclical model bottoms next Wednesday, March 15th. While many might think a breach of the 200-day moving again swings trends back to bearish, I’m confident that the Technology, Discretionary, and Industrials resilience coupled with a good amount of Small-cap and Mid-cap strength, above-average intermediate-term breadth and negative sentiment likely brings about a low for stocks next week.
This lines up with pre-election year seasonality, and I expect the back half of March to fare much better than the 1st half has been, regardless of Financials weakness.
For those that are very short-term focused, Thursday’s decline very well could show a bit more weakness, but I am not expecting last December’s lows are broken. 50% retracement support of the October-February rally hits at 3845 and I suspect that should be very strong on a retest.
Only if December lows and Technology and Industrials and Discretionary all start to breakdown coinciding with yields spiking above 4.35% would it be proper to expect a meaningful selloff. For now, given the rarity of stock market declines as Treasuries are rallying, I expect stocks bottom in the next 3-5 trading days, and specifically within 2 days +/- next Wednesday, March 15th for cyclical reasons.
Banks breakdown could lead $KBE lower in the months ahead
Tuesday’s downturn in Financials post FOMC Chairman Powell’s speech showed some extreme downside acceleration Thursday, as $SVB took steps to shore up its capital position following losses in its securities portfolio. The Crypto bank Silvergate’s announcement of its plans to wind down certainly also weren’t helpful in this regard.
Regional bank stocks had already been getting hit hard, despite rates rising in the last couple months, and now Thursday’s selling brought huge losses of 5% or greater in industry leaders like $JPM, $BAC, $SCHW, and $WFC.
In total, 18 stocks showed losses of at least 5% within the $XLF, and the SPDR S&P Bank ETF, $KBE, broke down to the lowest levels since late 2020 on a daily closing basis.
This selloff officially violated the area of trendline support which had connected lows since last Summer. Technically speaking, this is a negative development that should push KBE down to the mid $30’s in the months to come.
While this certainly looks to be a near-term concern for this sector, I’m skeptical that it needs to lead the broader market down substantially given recent strength in Technology and also Industrials. My feeling is that Healthcare and Energy should be on the verge of turning up and could buoy the market despite the selling in Financials.
Bottom line, Thursday’s selling is a concern for Financials, and this sector should underperform in the weeks to come. However, it’s wrong to expect this needs to metastasize to other areas of the market.
These stocks look to be particularly vulnerable in the weeks to come. I expect all of these to be lower in the days/weeks to come and would avoid buying dips until these declines have played out.
This list of technical “pans” within Financials is as follows: $SBNY, $LNC, $FRC, $ZION, $AIZ, $KEY, $CMA, $RJF, $MTB, and $HBAN.
Financials sector has now officially broken down from multi-year uptrends vs SPX
Thursday’s weakness in Financials has caused this sector to violate relative trends vs SPX going back since 2020.
The chart below represents the Equal-weighted Financials ETF ($RYF) vs the Equal-weighted S&P 500 ($RSP).
Thursday’s relative weakness sliced this uptrend going back since the 2020 lows. Overall, this is a technical negative for this sector, and underperformance is expected.
For those looking for relative outperformance within Financials, the Investment Bank/Brokerages look more attractive than Regional banks, or the broader Commercial banking sector. Insurance stocks also might offer some short-term appeal, but on a broader stock market bottoming next week and turn back higher, this sub-group would be likely to underperform into April on strength.
Bitcoin decline nearing support and this should begin to stabilize mid-next week before turning higher.
Bitcoin’s decline looked set to undercut February’s low close of 21639 as of Wednesday, but price is getting near support where $BTCUSD is expected to stabilize and turn back higher.
This entire consolidation since early February has taken the shape of a giant corrective ABC pattern which could be complete within the next 3-5 days. While many might ordinarily view a breakdown to new monthly lows as being bearish, BTCUSD is set to record its first DeMark related exhaustion signal on daily charts since mid-February potentially as early as tomorrow, Friday 3/10.
The price found support last month near its 38.2% Fibonacci retracement area and Thursday’s undercut of that level brought prices down to test the 50% support level near $20,450. While it’s always possible that the 61.8% Fibonacci retracement area could be tested, near $19,288, I’m skeptical that this is broken.
Momentum is nearing oversold levels, and it looks right to buy weakness, as $BTCUSD looks increasingly like an excellent risk/reward on this recent pullback.
Cycles show Bitcoin likely rising into mid to late-April, so despite BTCUSD’s underperformance of late, prices should rebound in the weeks to come. Upside resistance lies at $25k but exceeding that would be expected to bring about a move up to $27.50-$28k, which is an area of huge overhead resistance on gains.
