Key Takeaways
  • Past few days of churning has held up better than what news might have suggested
  • Gold Miners look to follow-through as they play catchup to the base metals stocks
  • Financials underperformance on yield weakness has arrived at key levels
Precious Metals start to shine, while Financials lie at key levels

This past week’s decline marks the sixth straight week of weakness out of the last nine weeks.  However, as has been discussed, price action has actually held up remarkably well compared to how some feel it “should” be trading given the ever-evolving negative news flow.   Unfortunately, it will be difficult to cast our sights higher without any proof of price strength, so for now, having a short—term tactical view will be imperative.   Key for short-term traders will be 4279, the intra-day March 1 lows, which is shown by the red horizonal trendline undercutting the lows of the past few days.  This looks to be more important than 4250, and under 4279, the odds of a retest of late February lows looks to be a real possibility.  However, I expect this to prove short-lived and buyable over the next 3-5 trading days for an advance into March FOMC.   Climbing over 4417 meanwhile should lead to 4450.

Precious Metals start to shine, while Financials lie at key levels
Source: Trading View

What areas are doing well and should be favored?  Why Financials are important to watch

In recent weeks it might seem as everything is falling, but most understand this to be a very dynamic environment for stock picking where many things have been going right.  For instance, outside of Energy, Commodity-centric stocks based on metals and mining have shown very good strength along with the agricultural space, many which have gone parabolic in recent days.  Moreover, Aerospace and Defense has been an appealing group to consider which has largely led the strength in Industrials in the past few weeks, while some of this week’s best technical price action was largely centered in the Defensive groups like Utilities and Staples.

Additionally, many within Pharmaceuticals as a part of Healthcare are largely considered defensive, and stocks like BMY, PFE, LLY, have been slowly but surely stabilizing and turning back higher this past week.   These also look attractive and should be favored.

However, it’s the Financials group which deserves focus as this week comes to a close.   Many of the Money center banks like  JPM 0.43% ,  BAC 0.29% ,  C 0.59%  have fallen on hard times and look to be suffering along with the European banks.  Furthermore, Investment broker dealer/investment banks like GS, MS have largely underperformed since last Fall and also don’t seem like the right area to position.  As talked about in recent days within the Financials space, Regional Banks and Insurance are two of the top areas to overweight.  Stocks like  TRV,  AFL 0.28% ,  PGR 0.33% ,  AJG 0.91% ,  WRB are all technical standouts that can be overweighted.   Furthermore, PBCT, TFC, FULT, CFG, MTB, and ZION should also merit some attention as these have held up quite well and are favorites of mine technically.  

Finally, the Exchanges group contains a couple of very attractive stocks technically which also can be considered within the Financials group:  CME Group ( CME -0.14% ) and Intercontinental ( ICE 0.33% ) are two which investors should consider technically and look to be much better area to position, than JPM, or BAC in the near-term.

Technically speaking, Financials underperformed sharply this past week given the pullback in Treasury yields.  The group remains treading water and despite how ominous some might feel this daily chart looks, until prior monthly lows are broken and we see Invesco’s Equal-weighted Financials index violate the green trendline undercutting lows, it remains right to view this as consolidation only.   Thus, Financials are more neutral, than bearish or bullish, but stock selection is viewed as quite important for success.

Any break of January 2022 lows in RYF or XLF argue for weakness in this group which likely coincides with Treasury yields falling further.   Overall, I view the Yield charts as being near support and ready to turn higher in the weeks to come.  Bottom line, holding 1.60% will be important for TNX and showing some evidence of stabilization.

Precious Metals start to shine, while Financials lie at key levels
Source:  Optuma

US vs Europe has begun to strengthen sharply in recent weeks

Charts of SPY vs FEZ ( SPDR DJ EuroSTOXX 50 ETF) has shown steady outperformance by the US since 2017, as seen by this ratio chart below.  While some minor churning happened from mid-2020 into 2021, this consolidation was broken late last year, and US took the lead in turning up sharply to outperform.    While stretched in the near-term after many European indices fell 4-6% on Friday 3/4/22, it’s still correct to favor relative outperformance in the US vs Europe as long as this uptrend persists.

Precious Metals start to shine, while Financials lie at key levels
Source:  Optuma

Gold Miners starting to shine- One group which has just begun to play “catch-up” to the commodities trade are the Gold and Silver mining stocks.  The Vaneck Gold Miners ETF ( GDX 2.10% ) has just exceeded late 2021 peaks along with a meaningful 18-month downtrend as of this week.  While it was right not to chase the initial rally off the lows from last month, this looks far more attractive now from a trend following perspective and looks to extend. 

Overall, DeMark indicators remain at least 3-5 days away from signaling a possible peak in price, and Gold, Silver have both thrived as yields have fallen this past week.  Movement from $37.40 up to $40.13 looks likely which would represent a retest of last Summer’s peaks while additional resistance lie above at $42.12.  While it’s difficult to call for a move back to highs, given that yields likely turn higher above 2.00% in TNX, in the short run, this geopolitically fueled push into Gold and silver stocks continues, and looks likely to extend.

Precious Metals start to shine, while Financials lie at key levels
Source: Trading View

Finally, it’s important to focus on a few areas that are not working right now, and one important one is the Airlines.   It seems like fuel concerns might be finally starting to weigh on the Airline stocks, and this breakdown of the three-month area of trendline support in  JETS 0.29% , the US Global Jets ETF,  looks important and negative.  Weekly closes under $19.57 argue for additional weakness next week down to $18 and then $15.07 and it looks premature to try to buy dips after this week’s breakdown.

While last month there was speculation that this group might start to show some recovery as the “2nd Reopening” started to get underway, the Russian invasion into Ukraine seemed to have been a game-changer for many sectors given the escalation in WTI Crude.  Overall, Airlines should be avoided in the short-run, and those who wish to play the Reopening trade should consider the Hotel stocks, which look far more appealing than the Airlines in the short run, technically.

Precious Metals start to shine, while Financials lie at key levels
Source: Trading View
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