The Gilmo Report

March 19, 2017

March 18, 2017

Financial stocks have been a bulwark of the market rally that began after the election. The Fed’s indication of more rate hikes to come caused many market pundits to begin forecasting three more rate hikes this year and then another 3-4 next year, financials don’t seem to agree.

While the Fed’s actions and words on Wednesday seemed to indicate a hawkish stance, the financials don’t seem to agree, at least not in the short-term. The Financial Select Sector SPDR Fund (XLF) has started to roll below its 20-day moving average on above-average selling volume. This coincides with several big-stock financials, from J.P. Morgan (JPM) to Goldman Sachs (GS), doing the same.

 

GR031917-XLF

 

This makes them all look like nascent short-sale targets, as the chart of Goldman Sachs (GS) would appear to indicate, below. Here we see the stock breaking below the 20-day moving average and the prior base breakout point as it meets up with the 50-day moving average.

Selling volume on Friday was heavy, coming in at 29% above average for the day. For a big stock like GS, that’s a sizable increase in volume, and the stock now finds itself standing at the gateway to the point of no return. Obviously, we’d need to see some strong volume off the line to keep this viable as a long, but the reality is that it’s starting to look more like a short to me, using the 20-dema as a guide for a tight upside stop.

As well, weak-volume rallies back up into the 20-dema could constitute potential short-sale entry points. So far the action in financials is puzzling, given the allegedly hawkish tone of Wednesday’s Fed policy announcement. At the same time, bonds and precious metals are moving in directions that would imply a dovish Fed tone.

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