Another Sector Tests All-Time Highs

by JC Parets  -  November 8, 2019

This is getting to be ridiculous. Bullishness investor sentiment is way down, surveys show, despite the fact that the bear case for stocks keeps on being proven wrong.

Why, you ask? We can argue for days about what specifically is driving people to try their hardest to find reasons to be pessimistic about this environment.

But the harder they try, the more money they lose. Frankly, I’m too busy finding stocks to buy to worry about that.

Add Financials to the List!

Well, you can now add the Financial Sector Index to your list of new 52-week highs. This is further evidence of expansion in upside participation, not contraction.

Breadth improvements like this keep adding up, there’s no denying that. It’s hard to make the argument that Financials are underperforming when they’re hitting new 10-month highs relative to the S&P 500, which is the exact opposite of underperforming.

Rotation, rotation, rotation. It’s the lifeblood of a bull market.

Remember when the bears were arguing that it was defensive rotation and the market was being driven by Utilities and Staples? Well both of those sectors are actually down YTD relative to the S&P 500 and still making new relative lows.

Positive Rotation Is What We’re Seeing

Today we’re looking at Financials pushing up against their historic 2007 highs for the 3rd time:

The more times a level is tested the higher the likelihood that it breaks through. I don’t know if this is going to be it, or if it will take a 4th or a 5th test. But I do think you will see an article from me coming soon where we’re looking at Financials at all-time price highs.

Meanwhile, on a total return basis, Financials are already making new all-time highs this week:

We can go back and forth about price-only or dividend-adjusted charts, but all-time highs and pushing against all-time highs are both characteristics of uptrends, not downtrends.

Now, I think the big thing to remember here is how little progress has been made on a relative basis. We’re actually still where we were in March 2009 in Financials relative to the rest of the market. Does that sounds like too extended to the upside?

For me, Financials breaking out relative can be a short-term catalyst to get things going to the upside. But bigger picture, we haven’t even gotten started. We could still be in the infancy stages of this bull market.

Anyway, this is what’s happening in Financials right now. It’s an interesting debate about price-only versus total return.

For more insight and charts that will shed light on what’s going to drive this market to end the year and beyond check out Off the ChartsThis is the place to go if you want to be ahead of the curve and identify the real leaders moving forward.