Are Energy Stocks And Banks Cracking?

As technology stocks continue to tick up to new record highs, banks and even more so energy stocks are showing signs of weakness. Yesterday, the Nasdaq (chart) hit an all time high of 6221.99 and the S&P 500 (chart) also notched a record recently at 2418.71. That said, the energy sector has lost almost 10 percent in the last month or so and the banking sector is beginning to technically breakdown. A very noticeable divergence is happening here and I think it is time to pay attention to this recent dynamic. The Dow Jones Industrial Average (chart) remains above 21000 and the small-cap Russell 2000 (chart) is seeking direction.

I am not surprised that certain sectors of the market are showing weakness which is only normal with the tremendous run the markets have had since the election, however, it is the sectors that are breaking down that is a bit alarming to me. One has to ask is the price action in oil and energy stocks indicative of weakening demand hence a weakening economy? Or is this just a matter of too much supply in oil regardless of the O.P.E.C. commitment to its production cuts. As far as the banks are concerned, one would also think with the Federal Reserve raising interest rates at their upcoming meeting in June and committing to additional rate hikes this year. that this would be bullish for bank stocks. Not the case recently. I am a little perplexed to the way the tape has been acting as of late especially pertaining to the aforementioned sectors.

The technical shape of the key indices appear to be intact with the exception of the small-cap Russell 2000. The Dow Jones Industrial Average (chart) is trading well above its 50-day moving average, along with the S&P 500 (chart)  trading near all-time highs and the Nasdaq (chart) as mentioned above hit an all-time high yesterday. However, the small-cap Russell 2000 (chart) is trading below its 50-day moving average and has been challenging certain support zones lately. This is yet another potential alarm along with the energy and banking sector weakness lately. So I would not be surprised to see the selling pressure in these particular sectors continue in the month of June which is historically one of the weakest month of the year for stocks. Good luck to all 🙂

~George

Fears Of A Greek Default Rattles Stocks…

The International Monetary Fund (IMF) which is owed a payment of $1.6 billion euros walked out on Thursday’s meeting when both sides were attempting to negotiate a pact to save Greece from defaulting on its debts and prevent the country from heading into bankruptcy. This stalemate was enough to send global markets lower as well as our own. The Dow Jones Industrial Average (chart) closed Friday’s session down 140 points, the Nasdaq (chart) finished lower by 31 points, the S&P 500 (chart) lost almost 15 points and the small-cap Russell 2000 (chart) closed lower by almost 4 points. This type of uncertainty is never good for the markets especially when markets are essentially at all time highs. People are already a bit nervous that stocks may be overheated and should default chatter increase, this could set the wheels in motion for the “sell-off” certain pundits have been calling for.

This upcoming week the Fed will also hold its two day meeting as market participants will be watching closing to see if any of the Fed’s language will change pertaining to the state of the economy and interest rates. I do not think anyone is expecting too much from the FOMC at this meeting. If market volatility increases, I am quite sure it would be Greece related rather than what the Federal Reserve may or may not say out of their policy meeting.

Friday’s selling pressure did send both the Dow Jones Industrial Average (chart) and the S&P (chart) 500 below their respective 50-day moving averages which is where they also closed. For the past few weeks all of the aforementioned key indices have been flirting with their 50-day moving average and each time they crossed this key support line buyers came in taking the indexes back through this well defined metric. I think it’s too early to tell if what’s happening in the global macro picture will continue to effect our markets or if this is just another pause in our incessant bull market. Have a great week and good luck to all 🙂

~George