[widget id=”text-22″]

[widget id=”text-23″]

Banks and Industrial Stocks Continue To Break Down As Outlook Worsens

[widget id=”text-19″]

On July 19 I will be one of three panelists talking about the state of the stock market and where it is going at the StockTwits Future Forum. 

S&P 500

The S&P 500 had a random day and most of the week. We finished the week at 2,754, falling short of my hopes for the break out above 2,800. Will it happen next week? Not sure. The chart still looks favorable to me, and the trend seems positive. So overall, I do not have a lot of concern for the health of the market, if the risk-on trade stays, well, “on.”

Biotech continues to look solid as well, and it would suggest to me the risk-on trade is still in place. The XBI Biotech ETF firmly held support at $97.90, a good sign.

Technology is firmly in an uptrend as well. For the market to continue to rise, the technology group is going to need to be a leading sector.

The semiconductor SMH ETF is attempting to bottom out around $106. Semis are one of the first groups that broke out a few weeks back, so we want to keep a close watch on them.

[widget id=”text-28″]

The banks continue to look very bad, and that is why it will be so important for Tech to continue to rise.

JP Morgan

JP Morgan fell below technical support of $106.50, but I will not call it a break down until it falls below $105.25, a price it has tested in the past. But the close below $106.50 is essential to take note of.  That would mean that JP Morgan has room to fall to about $101.30

Bank of America

It wasn’t only JP Morgan that fell below essential technical support, but Bank of America too, closing below $29.20. The next level of technical support would not come until around $26.

The ten-year closed below 2.9 percent, just barely, but still, the yield curve continues to flatten and that I fear is one of the most significant concerns for the banks going forward.

Caterpillar

We also continue to see weakness in the industrials with Caterpillar sitting at a critical level of support, which could send shares to $125.

Look, the problem with the banks and the industrials are not just because of trade wars, or whatever excuse is in vogue that day, it is because fundamentally these stocks are expensive, and the significant one-year benefits from tax-reform are behind us. It is June, and the market is always forward-looking by a good to 6-9 months, in my opinion. Investors are looking at the monster earnings growth of 2018, going to just respectable earnings in 2019, and that makes these stocks expensive

Look at these banks stocks; they are all trading at some of their highest valuations in nearly a decade on a price to tangible book value. Don’t compare them to each other, compare each to itself historically.

JPM Price to Tangible Book Value data by YCharts

The industrials aren’t as lofty as the banks, but most are still elevated.

Growth for many of these companies will fall dramatically next year, with Goldman going from earnings growth in 2018 of 16.2 percent to only 5.7 percent. JP Morgan from nearly 31 percent to just 8 percent, Boeing from 42 percent to 16.4 percent, Honeywell from 13 percent to 9 percent, Bank of America from 40 percent to only 13.6 percent.

Earnings growth and valuation are a major problem for many of these stocks. Then factor in trade tensions, a rising dollar, and the flattening yield curve, and then there is a whole bunch of reasons to not like these sectors.

I think the technical chart reflects much of this bearish sentiment. I hope this helps to offer some insight as to why I am so negative on these groups right now.

Anyway, hope it helps.

-Mike

Photo Credit via Flickr

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future. 

#banks #jpmorgan #industrials #bofa #boeing #caterpillar #sp500