There's Always Something to Worry About. Now, It's the Financials.
This is the kind of market that won't let you take a rest. First, the software stocks, and now, the financials.
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I am not even sure there is anything new I can say about software, so I think all I will say is that this market has become the sort of market one cannot sleep through. And I don’t mean the indexes because they remain in the same range they have been in since the fall.
In fact, the S&P’s range has tightened up since the calendar turned to 2026. I keep referring to that 6800 area (which is really more like 6775), but you can see on the chart that the last time we traded under it was when we fell out of it for a day at the December low.
So what am I referring to when I say you cannot sleep through it? Well, just when you thought the panic in software was subsiding, along come the financials. Oh, sure, we’ve been talking about them for weeks (okay, months!), but last week the XLF, an ETF to be long financials (which means not just banks), broke 51, filled a gap just below it, and rallied back. That means there was a collective sigh of relief. Then on Friday, the selling picked up again. Notice that (at least for now) the XLF did not take out that low from last week.
Yet please step back and take in the big picture. The financials, one of the most favored groups coming into this year, are trading where they were last July and not much higher than where they were in May and June. A breakdown from here would complete a top. Keep in mind how many came into the year long the financials, and the XLF is already down 10% on the year.
So, the good news is that XLF hasn’t broken (yet). The bad news is that the Bank Index made a lower low on Friday. There is a lot of support at 155 between the uptrend line and the flat support line, but if that gives way, I doubt the XLF will be able to keep this higher low from Friday intact.
The flip side of all of this is the Utes, which I have been fond of for months now. They broke out on Friday to a higher high. This is good news. Now the bad news: they are not only quite overbought up here, but Barron’s, after a ten percent move in February, finally saw fit to put them on the cover. I would not chase them up here, even though it appears to be a breakout. I suspect they will pull back in the weeks ahead.
As for the overall market, for weeks now I have been saying if the S&P can break 6800 (6775 is the real level), I think we can get some panic. That is still the case because the various moving averages of the options ratios are stretched, the AAII folks have begun to lean bearishly with more bears than bulls and this week the Citi Panic/Euphoria Model, which seems to be forever stuck in the mud in Euphoria (that’s what I call complacency) has inched down to levels not seen since last May. So it is possible that a crack in those well-watched levels could bring us some panic. Heck, maybe the VIX would finally get jumpy.
