Along with the highly publicized loss of leadership from big tech, the US stock market is now in danger of losing another, and possibly more important leader, the piggies or banking sector.
While the weekly chart of BKX has not yet broken down, it is very close to doing so after sporting a negative RSI divergence for the better part of the last year. We should not jump the gun with bearish scenarios, but as always we want to be among those looking forward and ready, just like in 2007, which was the last time BKX-SPX began to roll over in earnest.
NFTRH has followed the BKX-SPX (leadership) ratio every step of the way during the current leg of the cyclical stock bull market. Most recently we noted that BKX-SPX failed to make higher highs on two occasions. This put the ratio – and by extension the stock market – on alert as we watched for a lower low. Ladies and gentlemen, let me introduce you to a lower low.
BKX-SPX ratio (daily chart), from NFTRH 284
A bull rally is a series of higher highs and higher lows. The bull phase in leadership by the banks over the S&P 500 is now over. Okay great, we have expected this to happen. But it is the implications and conclusions that can be drawn from a failing BKX-SPX ratio that is important. Without conclusions after all, a ratio indicator is just a neat little tool making all sorts of noise about nothing. Here are some implications.
Interest Rates
With the Utilities sector still rallying strongly (Utes like a low interest rate environment), with the bottoming patterns NFTRH has been noting in 10 and 30 year Treasury bonds and now with the prime beneficiaries (of Fed policy) noticeably under performing the S&P 500 we can begin to firm up conclusions about T bonds and interest rates. We have been noting potential bottoming patterns on the bonds for several weeks…
30 & 10 year T bonds, weekly chart from NFTRH 284
