The technology and financial sectors are trading at important price levels. Tech could be ready to launch while financials are dangerously close to a key, long-term support level.
Tech stocks are providing some much-needed optimism.
Even among inflation, interest rate hikes, bank failures, and uncertainty around the banking system as a whole, tech stocks have rallied.
This chart from Sam McCallum shows how the tech sector (XLK) is breaking out to 6-month highs.
This is an astounding turnaround for technology companies. They ended 2022 in a horrible drawdown largely due to rising interest rates. The sector started strong in January, pulled back in February, and is now rallying again.
As crazy as it sounds, part of the rebound could be due to investors looking for a safe place for their money after the financial sector meltdown. Banks are typically viewed as safe, conservative investments while tech companies are the heart-pumping stocks.
But the steady stream of bank failure headlines coupled with the beaten-down stock prices of tech companies seem to have reversed investor sentiment. Now the question is whether tech can continue to rally.
But then there’s the financial sector.
While tech is breaking out, financial stocks (XLF) are dancing with a key support line.
Here’s another fascinating chart from Sam McCallum. It shows how XLF is testing an important price level that goes all the way back to the financial crisis.
If the financial sector dips significantly below that multi-year support level, it could pull the entire market down with it. If that does happen, the cause will be much deeper than banks’ stock prices.
It will signal that people are losing faith in the financial system. And loss of confidence is the biggest threat of all to banks and the overall market. (See this article for why that’s the case.)
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