Why Are Financial Stocks So Weak?

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I keep getting the questions “why are financials so weak” and “shouldn’t bank stocks be outperforming in a rising interest rate environment”?

Not all rising interest rate environments are good for financials. Banks tend to borrow on the short-end of the yield curve and lend on the long end. Their margins expand when long-term interest rates rise faster than short-term interest rates. The opposite has been happening in for most of 2018. In fact, the 10-2-year yield spread has been declining since 2014.

There are many other factors that impact financials’ margins. For example, if you look at JPM’s chart below, you will notice that the decline in the 10-2-year yield spread hasn’t really affected their profitability. JP Morgan’s earnings have increased by 50% since 2014. For the same period, its stock has appreciated 79%, not counting the dividends.

Overall, financials as a group have been showing relative weakness for most of 2018. With a relative strength of 52, the SPdr Financial ETF, XLF is right in the middle of the stack. $24-25 seems like a logical level of potential support. A move above 28.50 would be a bullish development.

Momentum Monday – Stocks Under Pressure

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Everyone makes money in a bull market. Not everyone keeps it when the inevitable correction comes. 5% to 10% pullbacks while the major stock market indexes are above their 200-day moving averages are normal and happen at least once a year. A 5% pullback in an index might mean a 20-50% quick decline in most momentum stocks. As hedge fund manager David Tepper likes to remind us “There are times to make money and there are times not to lose money. The key is to wait. Sometimes the hardest thing is to do nothing”.

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Disclaimer: everything on this show is for informational and educational purposes only. The ideas presented are not recommendations to buy or sell stocks. The material presented here might not take into account your specific investment objectives. I may or I may not own some of the securities mentioned. Consult your investment advisor before acting on any of the information provided here.

Momentum Monday – Stock Pickers’ Market

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Even the minor dips in the major U.S. stock indexes keep getting bought. Google, Apple, Amazon, Facebook, and Netflix are at or near their all-time highs. In the meantime, emerging and most foreign markets continue to struggle below their 200-day moving averages. The divergence between U.S.and foreign stocks in 2018 has been astounding. It cannot be explained only with the strength of the U.S. Dollar, which is barely up year-to-date: +2.9%.

The IPO market is on absolute fire. It hasn’t been this hot since 2013 when we saw a bunch of biotechs doubling and tripling in a very short period of time. This time, the heroes are software stocks.

We cover the following tickers: QQQ, ETSY, MELI, EEM, EWG, TWLO, TWTR, ADSK, SFIX, etc.

Disclaimer: everything on this show is for informational and educational purposes only. The ideas presented are not recommendations to buy or sell stocks. The material presented here might not take into account your specific investment objectives. I may or I may not own some of the securities mentioned. Consult your investment advisor before acting on any of the information provided here.

Momentum Monday – Bull Markets Correct Through Sector Rotation

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Recent Chinese IPOs have gone wild. Many of them have doubled in a month or two. Highly-shorted stocks are forcing short sellers out of their positions. Many momentum tech stocks are looking dangerously extended, but other sectors are starting to perk up and keep the stock market indexes afloat. Is the market running on fumes or sector rotation will save the day again and keep pushing higher?

We cover QQQ, MSFT, ETSY, MMYT, ROKU, TSLA, ISRG, TWTR, BABA, RH, MA, V, and many others.

Disclaimer: everything on this show is for informational and educational purposes only. The ideas presented are not recommendations to buy or sell stocks. The material presented here might not take into account your specific investment objectives. I may or I may not own some of the securities mentioned. Consult your investment advisor before acting on any of the information provided here.

The Biotech Sector Is Setting Up For A Breakout

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Bull markets often correct through sector rotation. When leading sectors take a breather and consolidate, others step up to the plate and break out. While tech and retail shined in the past few weeks, their momentum is starting to show signs of exhaustion. I would not be surprised if we see a short-term rotation as the hot money in the market chases after other sectors. Biotech and financials are prime candidates.

The small-cap biotech ETF, XBI is setting up near its all-time highs.

The large-cap biotech ETF, IBB is building a beautiful base above its 200 and 50-day moving average. Look at this tight range contraction in the past few days. A breakout and a confident close above 110 might spur further momentum. A 4-5% move in IBB usually means 20-30% moves in some individual biotech names.

In the meantime, interest rates are perking up again, which is usually good news for financials. Here’s the regional banks ETF KRE approaching new 52-week highs.

Disclaimer: everything on this website is for informational and educational purposes only. The ideas presented are not recommendations to buy or sell stocks. The material presented here might not take into account your specific investment objectives. I may or I may not own some of the securities mentioned. Consult your investment advisor before acting on any of the information provided here.