Posted on March 27, 2019
I’m not sure why, but when I was a kid, there was this thing that really bothered me.
I used to like to make models. Models of every kind – WWII Spitfires, British Dreadnoughts, musculo-skeletal human likenesses, dioramas of the Civil War – you name it.
Of course, they came with instructions, and like a good kid I followed them pedantically; I wanted the finished product to look exactly like it did on the box.
But there was one instruction that always threw me.
I hated it.
Invariably, it turned up at some stage of the assembly process, and it was the following –
I remember several times staring at the words suspiciously, knowing full well what they meant, and how I was supposed to discharge the order, yet for all that, I remember not being able to let the thing go…
I stared for what seemed like hours.
To this day, the very sound of ‘moisten tip’ puts me catatonic, and I wonder: for all the academic and on-the-job training I’ve accumulated over five decades, why-oh-why does the juxtaposition of those two simple words render me such a stooge – why does it so disturb and confuse?
I was brought back to my childhood micro-trauma just yesterday by a unique piece of technical portraiture that resembles the bony sculpturings I glued together at age nine.
I’m referring, of course, to the massive head and shoulders bottom that’s now close to completion on the broad market indexes – one that we expect to send the Dow to the 30,500 mark before it’s all over.
Think it’s a joke?
No superfluous moisture here.
Take a look –
This is the Dow for the last six months, and the index is clearly carving out a head and shoulders pattern (in red) that – while yet incomplete – bodes well for the intermediate term should we get an upside resolution.
Resistance arrives at Dow 26,250, and any breakout above that line offers a full northward count of 4250 points.
Not so fast, Pliny. When the time comes, we’re going to suggest looking in a different direction for this one – namely, the regional banks, a subsector that’s offering some of the best value anywhere on Wall Street.
No group as a whole currently sports a better P/E, dividend yield, Price to Book, or five year earnings growth number.
The chart looks like this –
It’s six months’ worth of the SPDR S&P Regional Banking ETF (NYSE:KRE), and as you can see, the most recent volume surge (in black) is commensurate with the last two bottoms in October and December of last year, indicating to us that the worst of the present decline may be behind us.
Moreover, RSI (in green) is so far in the hole for the third time in six months, that we believe a tremendously profitable technical/fundamental overlap is now in the offing.
We are not soothsayers or fortune-tellers – hell, we don’t even give such a great back massage – but we will shortly be jumping on this one if and when 1) either the Dow breaks higher, or 2) the regional bankers return to their 137 day moving average at $55.
Keep your eyes peeled, Pesel.
Alan B. Harvard