A Technician’s Financial Stability Report

The S&P 500 is still struggling to break out of its multi-year consolidation pattern. One reason for the index’s inability to rip higher has been a lack of participation by one of the largest and most important sectors: Financials

In January 2018, the Financials sector finally made it back to the 2007 highs, but they failed there and have yet to make a serious attempt at new highs. Here’s a look at the last 5 years.Financials.PNG

The 261.8% extension from the 2015-2016 decline has been the key resistance level for more than a year now, and we’re seeing another test right now. Getting above it could be enough of a catalyst to send the group through the decade-long resistance at $510, but until then, there’s no trend.

The Banks are the largest industry group, and their signature is similar. If they succeed on this test of the 2019 highs, the 261.8% extension from the 2015-2016 decline will be in focus, and the 2007 highs at $415 will be within reach. Another failure here could mean another retest of $300, which has been a critical rotational level for almost 3 years. Banks

The Diversified Financials look the same, too. The 2007 highs are at $820, but as long as the group is below $700, there’s clearly no uptrend in place.Diversified Financials

Insurance is the smallest industry group, but it’s certainly been the standout. Like the Banks and Diversified Financials, Insurance stocks failed near their 2007 all-time highs in January 2018. But unlike its two counterparts, Insurance has been unstoppable for much of 2019, ripping to a new high in June, and then holding the breakout during the August retest. With prices above a rising 200-day moving average, this is now an established uptrend. The next extension lies at $486, with the swing lows of $415 acting as key support.


If the Banks and Diversified Financials industry groups join Insurance in breaking key resistance in the coming weeks, the Financials sector could be strong enough to drive the whole market higher. In the meantime, I’ll be watching for clues in the bond market – the two industries in question have historically had a moderate, positive correlation with rates.

What do you think?

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