One Indicator Pegs U.S. Economy at Worst Level since 1959

Many economies predict 2014 to be the year of the economic recovery. Some economic indicators and surveys support this view, but this powerful common sense indicator shows the economy at its worst state since 1959.

Money velocity is the frequency at which one dollar changes hands and is used to buy goods and services within a given period of time.

To illustrate we’ll look at two simplified mock economies:

The Federal Reserve prints $100 to buy Treasuries from banks (NYSEArca: XLF). The bank invests the $100 in stocks.

A consumer withdraws $100 from his bank account to pay his mechanic. The mechanic takes his wife out for a nice dinner and the restaurant uses the money to pay its staff and buy new equipment. After receiving her pay check the waitress goes out and buys a new watch.

The original $100 in the second mock economy changed hands four times (high velocity) and helped support three additional individuals/businesses once  in circulation.

The conclusion is obvious: The higher the velocity, the healthier the economy.

Below is a chart of the U.S. money velocity. The St. Louis Fed money velocity data goes back as far as 1959. Current money velocity is at an all-time low.

This can’t be good for the economy and one would think that low money velocity couldn’t be good for the stock market either. Is that so?

Rather than assume, here are the facts.

The second chart plots the S&P 500 (SNP: ^GSPC) against the money velocity of M2 money stock.

The S&P 500 is charted on a log scale to enhance the major up and downs of the past 55 years.

Low money velocity preceded a bear market in 1973 and lower prices in 1977. Low money velocity was also seen about a year before the 1987 crash, which sent the S&P 500 and Dow Jones spiraling.

But there were other instances that had no effect, or no immediate effect, on the S&P 500 (NYSEArca: SPY) and Dow Jones (NYSEArca: DIA).

The current wave of velocity anemia is as unprecedented as the Fed’s liquidity machinations. Both events are likely connected (for every action there’s a reaction).

At very best, money velocity (and lack thereof) may serve as a very blunt warning signal.

Fortunately, there are better warning signals. One of them is discussed here. In fact, it is so effective, I call it insider trading. How Insider Trading Just Became Legal

Simon Maierhofer is the publisher of the Profit Radar ReportThe Profit Radar Report presents complex market analysis (stocks, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

‘Lazy Money’ – The Biggest Bear Market You’re Not Hearing About

Money isn’t created equal, just as economic growth isn’t created equal. There’s real organic growth and there’s artificial growth. The same is true for money. Although the system is flush with money, it’s lazy money.

What is ‘lazy money?’

Lazy money doesn’t move. It keeps to itself and doesn’t spread the love. Lazy money is like a couch potato, it plops itself down and stays down.

Today’s U.S. money supply is lazy, it has no motility or (to use Wall Street jargon) velocity.

What is money velocity?

The velocity of money is the frequency at which one unit of currency is used to purchase domestically produced goods and services within a given time period.

In simple terms, money velocity measures how often one dollar is used to buy goods and services. Decreasing money velocity means that there are fewer transactions between individuals in an economy.

Lower money velocity means that each dollar is touching fewer lives. To illustrate:

A dollar earned by an employee, spent in a restaurant, paid in wages to a waiter, who uses it to buy an iPod does more for the economy than a bailout dollar given to banks (NYSEArca: KBE), where it’s kept as a stagnant number on the balance sheet or dumped into stocks (NYSEArca: VTI).

What’s the velocity of money right now or how lazy is the dollar?

The chart below plots the S&P 500 against velocity of M2 money stock. M2 velocity data goes back to 1959, so does the chart.

The S&P 500 ETF (NYSEArca: SPY) is obviously at an all-time high, but M2 Money velocity has been in a bear market since 1998 and has never been lower.

Here’s my theory. The Federal Reserve prints money and gives it to select financial institutions (NYSEArca: XLF), which park it in stocks and reap fat returns. Banks no longer need to lend. The stock market is where money goes to grow and velocity goes to die.

The conclusion is one you’ve heard before: QE benefits stocks more than the real economy and Fed-printed money isn’t benefiting the economy as much as ‘organic’ money.

If you were to liken the different ‘types of money’ to food; QE money would be considered junk food. Wasn’t there a documentary (Super Size Me) that showed what a diet of junk food does to a human body?

Bernanke likes Wall Street Fat Cats and we won’t have to deal with artery-clogging side effects of the QE junk diet. This will be up to Janet Yellen, Bernanke’s successor to be.

Based on the market’s reaction, investors believe that Janet Yellen will continue Bernanke’s legacy of QE junk food (there are even rumors she’ll super size the banks’ portion).

President Obama went out of his way to praise his nominee’s financial acumen.

In fact, best case scenario the President spread his praise on too thick, worst case scenario he flat out lied about Yellen’s ability.

You can read the glaring conflict between fact and the President’s misleading praise right here: Did Obama Lie About Yellen?

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE Newsletter.


Popular German Newspaper Exclaims: Stocks Are on Drugs!

Stocks got a shot in the arm this week by favorable comments from ‘drug dealer’ Ben Bernanke. Ok, we’ve probably all heard about the drug – QE comparison, but no major newspaper has put it as bluntly and unmistakable as this one.

QE for the stock market is like drugs for a junkie. QE has the same effect (high) and the same eventual outcome (crash).

However, I had never seen this analogy on the front page of a major newspaper … until this week.

The Handelsblatt, Germany’s finance and economy newspaper, featured the “DAX on Drugs” (DAX auf Droge) article on the front page of the September 17 edition (image below).

The Handelsblatt writes (translated from German into English): “The flood of new money from central banks is driving stocks higher. For years, low interest rates have been a fast acting drug. Stocks are on a high. But more and more experts are warning of the dramatic consequences of inevitable withdrawal. Investors know that central banks are manipulating stock prices.”

That’s pretty blunt, but it doesn’t stop there: “In deed, it’s tough to find fundamental reasons for rising prices. Corporate profits are not keeping up with share prices. Even though analysts for 22 of the 30 DAX components lowered their profit forecasts, prices only moved in one direction, up.”

Stocks are Up, What’s the Problem?

Handelsblatt describes it this way: “The problem: Central banks are a temporary savior, but don’t eliminate the cause of the crisis, which is the enormous debt of citizens, corporations and countries. This creates an ever-growing addition to cheap money. Without this doping markets will crash. The longer markets are pushed up, the stronger the correction will be.”

Here’s what’s interesting about this article:

1) It graces the front page of a reputable newspaper
2) It talks about crisis even though the German DAX and US indexes are at all time highs
3) It openly and unmistakably shows the link between cheap money and share prices, calling it manipulation
4) It specifically refers to the Federal Reserve

What to Make of This

From a technical or chart analytical perspective, the German DAX is trading above strong support around 8,100. The up trend is in tact as long as trade stays above.

As a side note, there is no US traded ETF that replicates the DAX index (similar to the Dow Jones, the DAX consists of 30 ‘blue chip’ companies). The iShares MSCI Germany Index (NYSEArca: EWG) offers the best representation of the German stock market.

Germany obviously is Europe’s growth engine. The German stock market also accounts for 8.57% of the iShares MSCI EAFE International ETF (NYSEArca: EFA) and sports a close correlation to ‘our’ index of 30 blue chips, the Dow Jones .

The correlation to our Dow (NYSEArca: DIA) and S&P 500 (NYSEArca: SPY) makes the sentiment implication of the Handelsblatt article interesting.

Sentiment is a contrarian indicator, and the obviously bearish observations shared on the front page of a major newspaper are bullish for stocks. If it’s bullish for German stocks, it should also be bullish for US stocks.

If stocks rally despite obvious concerns, one wonders if anything can stop this QE bull? The following article takes a close look at this question and outlines what it will take to ‘slaughter’ this bull:

Who or What Can Kill This QE Bull Market?

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF


Trusted German Newspaper Asks: “Will the Financial System Collapse?”

A reputable German newspaper asks the question forgotten by many domestic media sources: With or without tapering, will the financial system collapse? The answer may be surprising to many.

Have you ever gotten tired of the same old financial news coverage dispensed by the likes of CNBC, Fox, Wall Street Journal, Reuters, and other US media outlets?

I’m not saying it’s bad information, but like eating the same meal over and over again, the same slant on financial developments could become a bit stale.

In my last trip to Germany I made a conscious effort to pick up and read a number of reputable German finance/economy magazines.

I’ll write more about interesting tidbits discussed in the German financial media in the coming days, but here’s more detail about a headline that caught my attention?

“Is A Financial Collapse Approaching?” 

This question was featured on the front page of the September 4 edition of the Focus Money magazine.

As a contrarian investor, my first thoughts were that prominently discussing the odds of a financial collapse minimizes the chances of just such an event. But this changed after I read the article.

Focus magazine asked legendary emerging markets investor Mark Mobius for his feedback on various investment themes. The MIT educated Mobius is 77 years old and heads the emerging markets team for Franklin Templeton.

Tapering Yes – Collapse No

Mobius expects Bernanke to start tapering, but says that this will have virtually no effect on stocks (NYSEArca: VTI) as liquidity remains in the system (although he admits QE’s role in driving up stock prices).

Mobius asserts that banks (NYSEArca: KBE) have cleaned up their balance sheets and will funnel more money in the real economy. “The fear of tapering is overdone – it will barely affect stocks,” he says.

Mobius believes that QE by the Bank of Japan will be successful and ultimately affect world markets (NYSEArca: EFA). In fact, liquidity provided by the BOJ will make up for the liquidity withdrawn by the Federal Reserve.

Time to Buy US Stocks?

Focus magazine: “As an emerging markets (NYSEArca: EEM) specialist, would you recommend buying US stocks?”

Mobius: “Diversification is important and investors shouldn’t put all their eggs in one basket, but it’s certainly a good idea to buy US stocks.”

A Bear in Bull’s Clothing

The financial collapse headline and Mobius’ views struck a cord with me as I see the odds of a major market top forming around current prices greater than 50%.

After reading the Focus Money article it became clear that – according to Mobius – there is no risk of a financial collapse. From a contrarian point of view that’s more bearish than bullish.

Mobius has strong opinions about other emerging markets issues, such as:

1) China’s government completely (as in 100%) controls its banks and has the ability to successfully implement any and all financial policies.

2) The most attractive place to invest is Africa, in particular Nigeria.

I don’t agree with Mr. Mobius’ outlook, but he does offer a perspective not available to many US investors.

Another somewhat shocking forecast is featured in Germany’s Handelsblatt, the German economy and finance newspaper.

The front page of an August edition touts another gold rush caused by China.

For more information read: According to Reputable German Newspaper, New Gold Rush Lies Ahead

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter


These Markets are Telling Bernanke that QE Hasn’t Worked for Years

‘Don’t fight the Fed,’ has been a convenient way to explain rising prices across the board. It’s even true as far as stocks are concerned, but there are other – even more important markets – that are openly defying QE. Begging the question, when will the hammer hit stocks?

It’s not widely publicized, but Bernanke’s QE bazooka has had some spectacular misfires.

The only market that’s recovered after every misfire is equities. If you look at the S&P 500 (SNP: ^GSPC) and Dow Jones (DJI: ^DJI) you’ll see about one misfire (at worst a 20% correction) per year followed by a strong recovery.

QE had done its job as far as equities were concerned, but it looks to be a ‘one trick pony.’

The same ‘medicine’ (or drug) that’s doing wonders for stocks is causing nausea (or hangover) for other asset classes. Which ones? How about gold (NYSEArca: GLD), silver, and long-term Treasuries (NYSEArca: TLT)?

The chart below is a side-by-side demonstration of QE’s failure to launch gold, silver and Treasuries. Charted is the performance of the corresponding ETFs (GLD, SLV and TLT) during their respective crashes.

From September 2011 to June 2013 gold prices fell 38.85%. From April 2011 to June 2013 silver lost a stunning 63.42% and the iShares Barclays 20+ Year Treasury ETF (NYSEArca: TLT) is down 22.70%, since its July 2012 high.

Why? Gold and Silver

The Fed was still priming the pump in 2011, 2012 and 2013 and investors were still concerned about inflation. The same forces that drove prices to all-time highs persisted when prices hit an air pocket. The inexplicable happened!

Why? 30-year Treasuries

Treasury yields – in particular the benchmark 10-year note (Chicago Options: ^TYX) – have a huge economic impact. It’s the financial power horse that carries the economic carriage.

That’s why the Federal Reserve has been buying trillions of dollars worth of Treasuries to keep yields down. The 10-year Treasury yield is the highest it’s been in over two years. The inexplicable happened!

Why did gold and silver crash? Why are Treasury yields rising and bond prices falling?

This common sense analogy comes to mind: Another fix (aka more QE) for a junkie (aka banks) only postpones the inevitable.

How long will it be before stocks get hit by the inexplicable inevitable?

A stock market ‘event’ may not be too far off. In fact, via a series of recent studies, the Federal Reserve has started the process of officially denying liability and preparing Americans for a possible market crash.

This study is the most interesting of all: Surprising New Fed Study – Is it Preparing Americans for a Market Crash?

Simon Maierhofer is the publisher of the Profit Radar Report.

Follow Simon on Twitter @ iSPYETF.



Banks – Record High Excess Deposits May Fuel Stock Bubble

JPMorgan just recorded the largest amount of excess deposits in the history of banking. This sounds good at first glance, but it reflects a trend that exposes the entire banking sector to way above average ‘human error.’

In the aftermath of the financial crisis, the Fed kept encouraging banks to lend more.

Money makes the world go round and if banks don’t lend the economy doesn’t hum.

As of June 30, total loans by JPMorgan hit the lowest amount ($726 billion) since September 2012. Yeah, that’s not great, but not terrible either, it’s only a 9-month low.

At the same time deposits hit an all-time high of $1.203 trillion. That doesn’t sound bad; it just shows that JPM is well capitalized.

But behind the façade of engineered figures lurk some troubling questions:

  1. Banks are supposed to lend the money entrusted to them via customer deposits. The interest margin is where banks make their money. Apparently though, the margin business is no longer as attractive as it once was.

    Investing customer funds is obviously more profitable than lending. What happens if banks have no incentive to lend?

  2. JPMorgan’s excess deposits are at an all-time high of $477 billion ($1.203 trillion – $726 billion). Where does the excess money go?

The ‘London Whale’ trading disaster, which cost JPM some $3.4 billion (as far as we know), was funded by excess deposits.

With 61%, JPMorgan has the lowest loan-to deposit ratio and leads a trend. The average loan-to-deposit ratio for the top eight commercial banks has dropped nearly 10% in recent quarters.

We don’t know exactly where banks put their money, but we know Wall Street is just plain greedy. Like a horse, big banks will gorge themselves on juicy returns regardless of the consequences.

Right now it’s easier to make money with stocks, junk bonds, and other sophisticated leveraged instruments than lending. No doubt that’s where money is going and $477 billion (that’s just from one US bank) can buy a lot of stuff.

Based on past experience, big banks don’t know when enough is enough. Rather than stopping while they’re ahead, they’ll continue to play until someone gets stuck with a hot potato.

As per last week’s ETF SPY analysis, the Financial Select Sector SPDR (XLF) does not appear to have reached the end of the rope yet.

Higher prices are still likely, but technicals as well as big banks propensity for short-sighted decisions, caution that this time may only have been delayed, not different.

Banks – More Money Doesn’t Buy Smarter Decisions

Believe it or not, the Federal Reserve is creating some ‘serious’ problems for big banks. JPMorgan’s CEO Jamie Dimon and BlackRock’s CEO Larry Fink explain the catch 22 situation, and former Federal Reserve Chairman Volcker offers some poignant words of wisdom for Bernanke.

U.S. banks earned $40.3 billion in the first quarter of 2013. That is more than at any other time in history.

For greedy banksters that’s a problem. What to do with all the money? According to JPMorgan Chase CEO Jamie Dimon, there aren’t many good options to put the money to work.

Dimon threatens that banks may just sit on their cash and do nothing.

We know what banks aren’t doing. They aren’t putting any money away for a rainy day. Based on FDIC data, ‘rainy day reserves’ are at a 6-year low.

BlackRock’s CEO – Larry Fink – isn’t worried about future risks either. Fink said on CNBC that the bull market may well continue another five to six years and drive the Dow as high as 28,000.

If there’s anyone you can trust, it’s Fink. With some $4 trillion under management, his firm is the largest asset manager in the world and he surely has no incentive to talk stocks up, right?

Of course banks’ ‘big problems’ are caused by their biggest ally and protector – the Federal Reserve. Without QE (quantitative easing) banks wouldn’t be flush with cash, they’d probably still try to recover from their crash.

Paul Volcker, Federal Reserve Chairman from 1979 – 1987, offered at few disguised words of wisdom for Bernanke at the Economic Club of New York.

  • The Federal Reserves basic responsibility is for a “stable currency.” Asked about the dual mandate, Volcker said: “I find that mandate both operationally confusing and ultimately illusory.”
  • Is the Federal Reserve squandering its credibility: According to Volcker, “Credibility is an enormous asset. Once earned, it must not be frittered away by yielding to the notion that a little inflation right now is a good a thing, a good thing to release animal spirits and to pep up investment.”
  • What about inflation and the Federal Reserve’s ability to control inflation: “The implicit assumption behind that siren call must be that the inflation rate can be manipulated to reach economic objectives. All experience demonstrates that inflation, when fairly and deliberately started, is hard to control and reverse.”
  • Will there be a tipping point for Fed policy to stop working: “The Federal Reserve, any central bank, should not be asked to do too much to undertake responsibilities that it cannot responsibly meet with its appropriately limited powers.”
  • More Wisdom about the Fed’s limits: “Asked to do too much, for instance to accommodate misguided fiscal policies, to deal with structural imbalances, to square continuously the hypothetical circles of stability, growth and full employment, then it will inevitably fall short,” Volcker said. Those efforts cause it to lose “sight of its basic responsibility for price stability, a matter that is within the range of its influence.”

To sum up: Bank executives fear of risk is drowned by too much cash and greed. They will find ways to make more money, riskier ways, which will cause more pain and less gain in the end. According to ex Fed Chairman Volcker, the Fed may soon be unable to enable.

How The Federal Reserve Gives Insider Trading Tips to Big Banks

Investors have no clue what goes on behind closed doors at Wall Street banks and the Federal Reserve. But once and a while a juicy piece of information (probably overlooked by censors) provides a glimpse of Wall Street’s carefully guarded secrets.

The New York/Washington Banksters do a good job of keeping internals hidden, but once in a while a juicy nugget escapes. Those kinds of nuggets make investors lose faith in everything Wall Street, that’s why Banksters like to keep them secret to begin with.

Insider Tips from the Federal Reserve?

On August 17, 2007, the Federal Reserve cut the discount rate from 6.25% to 5.75%. The Fed is quite careful about changing the discount rate, and when it does it’s usually only tweaked by 0.25%. The 0.5% cut on August 17 was ‘unexpectedly’ drastic.

The Fed regularly releases transcripts of its policy meetings with a 5-year lag. Courtesy of such a release we are now getting a glimpse of what happened leading up to the August 17, 2007 meeting.

In an August 16 video conference call, Timothy Geithner (back then president of the New York Fed) said banks “obviously don’t have any idea that we’re contemplating a change in policy.”

Jeffrey Lacker, head of the Richmond Fed, questioned Geithner’s statement and asked: “Did you say that they are unaware of what we’re considering or what we might be doing with the discount rate?”

What reason did Lacker have to question Geithner? The transcript continues: “I (Lacker) spoke with Ken Lewis, president and CEO of Bank of America, this afternoon, and he said that he appreciated what Tim Geithner was arranging by way of changes in the discount facility.”

In a statement provided to Reuters last Friday, Lacker reiterates: “From conversations I had prior to the video conference call on August 16, 2007, I was aware of discussions among a few large banks about borrowing from their discount windows to support the asset backed commercial paper market.  My understanding was that (New York Fed) President Geithner had discussed a reduction in the discount rate with these banks in connection with these initiatives.”

What’s the Difference?

What difference does this make you may wonder. The chart below provides a nice visual. The Fed hasn’t had a chance to lower rates in years, but right before the financial crisis interest rate announcements sparked anticipation like nothing else.

At 2pm on August 16 (a day before the official announcement), stocks started to soar for no apparent reason. The S&P 500 jumped 45 points within a matter of hours and recorded its best gain in 4 ½ years.

Financial ETFs like the Financial Select Sector SPDR ETF (XLF) soared as much as 16.95% that day.

The SPDR S&P Bank ETF (KBE) gained as much as 7.26% that day.

Over the next few weeks, the S&P 500 continued to rally more than 200-points. It went as high as 1,576.09. The rest is history with still much mystery.

Although with a more than 5-year time-lag, we now find out that the Federal Reserve kindly gave the big banks a friendly heads up.

The Treasury declined to make Geithner available to comment. Spokesmen for the Federal Reserve Board in Washington, the New York Fed, Bank of America, and Ken Lewis all declined to comment.

News Flash: Is Bernanke Going to Throw in the Towel?

Abstract: Former president George W. Bush first appointed Ben Bernanke to run the U.S. central bank on February 1, 2006. President Obama confirmed a second term on January 28, 2010. But latest news suggests that Bernanke is done.

The New York Times reports that Federal Reserve Chairman Ben Bernanke has told close friends he probably will not stand for a third term.

Mitt Romney has made no secret that he would not re-nominate Bernanke if he wins the presidency, but it’s news that Bernanke told friends he wouldn’t go for a third term even if president Obama gets re-elected.

The Fed and the White House declined to comment and Bernanke’s own words from a new conference last month are ambiguous: “I am very focused on my work, I don’t have any decision or any information to give you on my personal plans.”

Bernanke’s term as chairman ends in January 2014.

Treasury Secretary Timothy Geithner already stated that he wants to leave by the end of the year.

Why would Bernanke and Geithner want to leave their prestigious jobs?

Here’s my opinion: Bernanke and Geithner are the center of the financial world. They know exactly what’s going on and what the Federal Reserve can and cannot do.

They know how many skeletons banks (corresponding ETF: SPDR S&P Bank ETF – KBE) and financial institutions (corresponding ETF: Financial Select Sector SPDR – XLF) have in their closets.

They know how good or bad the shape of the European financial system is in and realize the implications of the growing U.S. deficit.

The U.S. economy has hit an iceberg. The Federal Reserve’s “pumps are pumping as hard as they can,” but the ship is still taking in too much water. It’s just a matter of time for the inevitable to occur. Who wants to be the captain of a sinking ship?

But does leaving a ship – damaged but afloat – relieve the captain of his accountability? Perhaps we should ask Alan Greenspan.

Simon Maierhofer shares his market analysis and points out high probability, low risk buy/sell recommendations via the Profit Radar Report. Click here for a free trial to Simon’s Profit Radar Report.

Big Banks Pity Their Near-Record Profits – Is This Bullish for the Financial Sector?

It’s tough being a banker today. The Federal Reserve wants to buy their bonds for top dollars, profits are near all-time highs, and yet bankers just aren’t happy. Here’s a closer look at the numbers and technicals.

“Mirror, mirror on the wall, who is the richest of them all,” the six big banks ask. The mirror replies: “You are the richest of them all, almost as rich as you were in 2006.” Disappointed about not being the richest ever, the banks walk away to drown their sorrow in a pity party.

The six largest banks reported a combined annual (June 2011 – June 2012) profit of $63 billion. How does this compare to the banks’ all-time record earnings? In 2005 banks earned $68 billion, in 2006 they earned $83 billion.

Banks are depressed because the new regulatory regime crimps their style and proven methods to make money. It requires banks to maintain bigger capital cushions. This limits their appetite for insane leverage and makes it harder to earn an “adequate” return on equity.

Boy, and those low interest rates really make it hard to make money too, they say. Never mind that the Fed pushed down interest rates just to keep the banks alive.

Some of the $63 billion profits (exactly how much nobody knows) aren’t real profits. They are accounting gains, profits engineered by clever accountants. That would explain why the six largest banks announced at least 40,000 job cuts from June 2011 – June 2012.

Perhaps this will give the banks – which are JPMorgan Chase, Wells Fargo, Goldman Sachs, Citigroup, Bank of America, and Morgan Stanley – reason to cheer. According to Bloomberg estimates they are expected to earn in excess of $75 billion in 2013.

Will Financials Rally Further?

The August 5, Profit Radar Report took a closer look at financial sector – the Financial Select Sector SPDR ETF (XLF) in particular – and featured the following research:

“Financials are currently under loved (who can blame investors). Of the $900 million invested in Rydex sector funds, only $18 million (2%) are allocated to financials.

With such negative sentiment, a technical breakout (close above 14.90) could cause a quick spike in prices. Next trend line resistance, and possible target, if 14.90 is overcome, is 15.63.”

As the chart below shows, this technical break out above resistance (dotted red lines) occurred on August 6th. The initial target at 15.63 (outlined by the solid red line) was met and exceeded quickly.

This red line, previously resistance, has now become support. There was no price/RSI divergence at the September 14 high, which suggests at least another run to new highs … another reason to make the bankers happy.

The analysis for the SPDR S&P Bank ETF (KBE) looks nearly identical.

The only way investors can share in the bankers’ (undeserved) joy is to profit from opportunities like this. The mission of the Profit Radar Report is to identify high probability and low-risk buy/sell signals for the S&P 500 and many other asset classes.