July 14, 2020
By Mish Schneider
Last night I featured junk bonds JNK.
As it has been underperforming, I wanted to give a head’s up in case it failed a key support area.
However, it not only held over the 101 area, it rallied to close up .97%.
With risk appetite still a thing, I turn back to the financial sector now that earnings season has begun.
JP Morgan JPM reported well with a surprise lift from auto loans.
Wells Fargo WFC did not do so well.
Wells Fargo has had issues with fake accounts, large fees and is the only bank that could not stand the recent bank stress tests.
They were already required to lower dividends, so today’s poor results leading to a huge dividend reduction is not healthy for that bank.
Nevertheless, with more banks to go, the ETF XLF closed well.
The banks that have an investment arm are projected to do better.
With the rollback of the Volcker Rule, Bank of America, Morgan Stanley, and Citicorp (big banks) are allowed to invest money in equities.
Although I have yet to see evidence of that, that deregulation can help spur profits for the banks as well (assuming the market does not fall apart).
Looking at the ETF XLF, it has entered a better phase going from bearish to recovery.
This is key to the whole market picture right now.
If XLF and the big banks can hold up or even better, remain positive, it’s possible that money will rotate out of tech and into the financials in the next few days.
That is a better story for a projected improvement in the economy for the 4th quarter and beyond.
The market is forward thinking.
Russell 2000 (IWM) 137 support 146.00 resistance
Dow (DIA) Unconfirmed accumulation phase-needs to confirm
Nasdaq (QQQ) Reversal top did not confirm-so there
KRE (Regional Banks) 34.00 key support
SMH (Semiconductors) 160 pivotal
IYT (Transportation) Very encouraging move in this sector. 173 resistance
IBB (Biotechnology) Good comeback
XRT (Retail) 43.40 pivotal
Volatility Index (VXX) Unconfirmed bullish phase did not confirm
Junk Bonds (JNK) 104.50 resistance 101.50
LQD (iShs iBoxx High yield Bonds) 134.90 support key
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