The major averages have been playing the same tune in recent days: The bulls charge out of the opening gate only to find themselves slowing getting corralled by the bears. Last Thursday, 1620 was the high water mark for the bulls. On Friday it was 1616, and today 1626 proved to be the upper level of resistance. The fact that the bulls have been unable to make a meaningful intraday advance is telling us that the bears are gaining ground. Another important tell is that the VIX is having problems breaking through 16, a key level of recent support. It's only managed to breach that level twice in the past month and then only for a very short periods of time. The fact that 16 held firm today despite multiple tests is showing the strength of the bears. However, they may have to wait until next week to celebrate as markets have a strong tendency to rally just before major holidays.
Today's notable market action: Agricultural commodities getting plowed under as banks continue their growth spurt
Shares of the Grains (GRU) and Corn (CORN) etns have been trending down steadily for over a year. From their peak values, both funds have shed more than a quarter of their values. Today, both slumped under support and are looking to retest their 2012 lows which would be about 7% below today's closing values.
The question is: Should you short these? I wouldn't simply because the risk/return potential is low. Instead, commodity players should put them on their watch lists for when they do turn around to begin accumulating long positions. Note that another way to play these mainly field-based commodities (soybeans, wheat, sugar, coffee, cotton, corn) is to use the Agricultural etn (JJA)as a proxy for them all. There are options on both CORN and GRU but not on JJA, and the options field (no pun intended) on CORN is the more robust.
On the flip side, regional banks and insurers were among today's highlights. There were 30 regional banks on the New Yearly High list and 9 insurers. Both of these groups were greatly beaten down during the "Great Recession" of 2008-2009 and are still undervalued relative to the overall market. Dividend yields in both groups are in the 1-3% range and both are expected to do well in a rising interest rate environment.
Two of the more popular regional bank etfs (KRE, IAT) continue to hit new highs while the Insurance etf (KIE) recently bounced off $52 support and is looking to retest its recent high of $55 which is just above today's closing price. I've been touting the regional banks for the past several weeks and although there's still time to get in on the game, the door is closing fast as valuations move higher. Right now, insurance may be a better bet as many of these issues are still trading at depressed levels. For example, the four insurers breaking out to new highs today all have P/E's ranging from 8 to 16: Endurance Specialty (ENH, $52), Genworth Financial (GNW, $12), Lincoln National (LNC, $37), and Maiden Holdings (MHLD, $11). Of these, I like Genworth because at $11.92 per share it is significantly under its tangible book value of $25.86. The one downside is that it's the only one of the four that does not pay a dividend.
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