Strawberry Blonde's Market Summary: Will U.S. Banks Outperform the S&P 500 Index in 2018?

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Sunday, January 14, 2018

Will U.S. Banks Outperform the S&P 500 Index in 2018?

* See UPDATE below...

The following Monthly chart of the Financial Sector (XLF) shows that it has been on a strong rally since mid-2017. It's approaching major resistance around the 30.00-31.00 level (prior all-time high and double Fibonacci retracement levels).

The following Monthly chartgrid of XLF and five of the major U.S. bank stocks (GS, C, JPM, BAC & MS) shows, at a glance, which of these stocks has, either, outperformed and made a new all-time high, or, underperformed XLF.

The following Monthly ratio chart of XLF:SPX shows that price broke out above its first major resistance level of 0.0103 (confluence of price and its 40% Fibonacci retracement level) at the end of 2017.

The next major resistance is around 0.0115 (confluence of price and its 50% Fibonacci retracement level).

Given what I said in my post of January 12 ("...the SPX may see some whip-saw action in the coming days/weeks..."), XLF may continue to outperform the SPX for, potentially, some time -- perhaps the first couple of quarters this year -- until we see further clarity of the Fed's intentions (short and longer term) regarding interest rate increases, as well as further developments in the November U.S. mid-term Congressional election, by the third quarter.

If so, keep an eye on whether:

XLF can continue its push to spike through, and hold above, 31.00,
GS and JPM continue to maintain their upward momentum,
C, BAC and MS can strengthen their upward climb (all three have a long way to go to reach their prior all-time highs), and
the XLF:SPX ratio can hold above 0.0103 and climb higher

* UPDATE January 21...

Continuing to watch XLF vs SPX...

Will the XLF:SPX ratio hold above its Friday closing price of 0.0105 (now near-term support, as shown on the daily chart below)? This is a new key level, along with its longer-term major support level of 0.0103, as noted above.

Keep an eye on the RSI, MACD and PMO technical indicators to see if they remain newly-bullish in support of a push higher for XLF.