For 6 weeks following the March bottom, financial stocks enjoyed Teflon status. Dilution after dilution was bought and rewarded with higher stock prices. Bells were ringing confirming the March bottom. However in May, things suddenly changed. After a nice pop on May 1st, the financials have been selling off. From what I can tell, no big alarms are sounding in the financial press. Perhaps the roar of oil soaring above our heads has been drowning out the wincing of the financial stocks. Why should we care? Well, financials led us down to the January and the March lows. They also sold off ahead of last week's market swoon. The lower financials go, the more danger we should assume hides in the major indices.
I will let some charts do the talking about the warning signs that seem to be gathering around us. (Disclosure: I have or have had recent long and/or short positions in all of these names. See disclaimer here.) I start with financial stocks and end with some other important stocks that are failing the test. Finally, note that it is no accident that these warning signs are cropping up as the major indices collide with major resistance levels. We should expect some kind of bounce by the end of this week as last week's selling brought us close to oversold levels.
For starters, XLF, a financial ETF, is back at April lows, and looks to be heading lower for a retest of the January and then March major lows.