Italian Banks, S&P 500, Oil And More

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Includes: EUFN, IBB, OIL, SCO, SPY, UDN, USO, UUP, XLF
by: Mott Capital Management

Summary

European banks have come under pressure.

The IBB sits at an inflection point.

Where do yields go now?

With everything going on in the world and all the talk of Italian banks, I thought it would be interesting to see how the banks in Europe are performing this year. Below is the iShares MSCI Europe Financials Sector Index ETF (NASDAQ:EUFN).

Click to enlarge

We can see from the chart they are clearly trading at the lowest levels for this year and last. Is this a sign of the pressures negative rates are having on the banks' ability to generate earnings? Or is there perhaps something more severe happening in the European banking system as a whole? I'm going to be doing more digging into this over the next few sessions to see what I can come up with. However, this obviously is something that I will continue to monitor.

We can see that US banks, shown below as the Financial Select Sector SPDR ETF (NYSEARCA:XLF), have not fared well either. They have been under pressure since the beginning of June. However, they have not performed nearly as poorly as their European counterparts.

XLF Click to enlarge

Equity Market

The S&P 500 today continues to gyrate back and forth with no real conviction at this point either way.

spx Click to enlarge

We can see from the chart above the S&P has successfully refilled the gap created on the post-Brexit morning. The question that lies ahead is, which way now? Apparently, the market is trying to make that decision today. However, the trend since July 1st has clearly been lower. I'm still eyeing 2060 as a support level and potentially the next stop.

Sector Spotlight

If you want to know what is helping the market today, you need to look no further than the biotech sector, with renewed interested in M&A heating up. The chart below is that of the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB).

IBB Click to enlarge

You can see, we have successfully put in place a triple bottom around the $240 level. We have a clear downtrend sitting around the $270 level. The IBB is sitting at a near-inflection point.

Currencies

The dollar has continued to strengthen post-Brexit against many of the major currencies. The GBP is now trading below 1.30 versus the dollar, and is likely still heading lower. With all the uncertainty surrounding Brexit and the potential fallout, I can't see the situation in the currency improving. Of course, the benefit to the UK is positive regarding exporting goods. However, it also becomes more costly to import goods. This will likely pressure the UK economy over time.

GBP Click to enlarge

Commodities

Of course, a stronger dollar does not bode well for commodities. As a result, oil has continued to struggle lately.

wti Click to enlarge

We can see oil has been trending downward since the beginning of June. However, there's apparently strong support for oil around $45.50 -46.00. Some of the recent strength in the dollar will fade as we continue to move through the summer months. As uncertainty around the world continues to unfold, it will become more apparent to the market that the Fed will not raise rates for 2016. As that shift continues to unfold, the dollar weakness should push crude over $50.

Yield

Finally, we will take a look at 10-year Treasury yields. The yields have fallen to all-time lows. I think the recent move lower is nearing a conclusion. I believe we are due for a short-term reversal in yields back toward the 1.45% level.

tnx Click to enlarge

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request the advisor will provide a list of all recommendation made during the past twelve months. Past performance is not indicative of future performance.