Courtesy of Chris Kimble.
If the saying So Goes The Banks, So Goes The Broad Market is true, what message are we receiving when financials have lagged the broad market for over a year?
This 2-pack looks at the XLF/SPX and EUFN/XLF ratios over the past couple of years.
The XLF/SPX ratio has created a series of lower highs for the past 12-months after peaking at (1). The EUFN/XLF ratio has created a series of lower highs for the past 18-months after peaking at (2). These falling trends look to be sending a negative divergence message to the broad markets if one believes that banks are important for bull markets.
Each ratio is near falling resistance at each (3). Stock bulls would receive a positive message from financials if both breakout. Stock bears would receive a positive message if both turn lower at the falling resistance lines.
As the S&P, NDX, and Dow are near breakout tests of last years all-time highs, what these ratios do at each (3) will most likely send an important message to stocks in the states and Europe.
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