Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Financials Leading Market, but Watch for a Pullback


And just because they're leading doesn't mean that any and all of them can be bought. Look for winners that will do well if Financials continue to lead in 2012.

With improving technicals and a lion's share of the downside priced in, the financials are showing relative strength. And, although it is early in the new year, they are leading the market higher. No doubt, it is much too early to foresee the rest of 2012, but if this story has legs, it will provide support for the coming market pullback, as well as offer investment opportunity.

The chart below provides a percent-gain breakdown by sector for the first two weeks of the new year. And although it doesn't feel right to call the Financials a market leader, they are in fact leading, and have been since mid-December 2011. The Financials Select Sector (XLF) is up over 6% (compared in the chart below against Industrials (XLI), Energy (XLE), Technology (XLK), Healthcare (XLV), and Consumer Discretionary (XLY)).

Now be careful not to get carried away with this. There will be a pullback (and soon) and it will need to be played like any other investment (with a stop!). The near term chart with technical analysis overlay (see below) shows that a pullback to 13.20-13.35 would offer opportunity on the XLF (stops set depending on risk profile and type of investor – short- or long-term).

And this doesn't mean that any and all financials can be bought. Far from it. Do your homework and find winners that will do well if Financials continue to lead in 2012. And pay attention to support and resistance levels, as well as technical formations. Stocks like Goldman Sachs (GS) and Morgan Stanley (MS) have raced higher but are still caught in short term wedge formations. Citigroup (C) and Bank of America (BAC) have raced through near term resistance and into more important longer-term downtrend resistance. And stocks such as PNC Financial (PNC) have broken higher and shown relative strength. Note that PNC's 50-day moving average is about to break higher through its 200-day moving average, a bullish longer term signal.

Below is chart for the Regional Banks Index (BKX). It has been strong as well, but supports the notion for a market pullback as it is overbought and in need of digestion and consolidation.

Editor's Note: Andrew Nyquist is an independent investor based in the Minneapolis area. This article originally appeared on his investing and economics site, See It Market. His writings also appear on Minyanville's blog community.

Twitter: @andrewnyquist
< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos