In this article I highlighted the fact that – on a historical basis – the financial sector is in “oversold” territory. As I also mentioned, this fact does NOT mean that a bottom and/or immediate reversal to significantly higher ground is necessarily imminent. But it does suggest we should be paying attention.
I also highlighted an indicator that has done a reasonably good job of identifying buying opportunities for the financial sector in the past, and that a new “bullish” signal will occur once this (monthly) indicator reverses (which again, does NOT mean that financial stocks are guaranteed to rally once that occurs, only that it has displayed a tendency to do so in the past).
Financial Stocks and the Election Year
I will be paying particularly close attention if the indicator in the linked article gives a bullish signal sometime in the next several months because we will be entering the second part of an election year, which has historically been favorable for financial stocks.
Figure 1 displays the cumulative total return for ticker FSRBX (Fidelity Banking Sector) ONLY during the months of July through December of each election year since 1988 (the fund started trading in 1986).
Figure 1 – Cumulative % return for ticker FSRBX ONLY during Jul-Dec of Election Years (1986-2020)
Figure 2 displays the results in table format.
Figure 2 – FSRBX total return July-December of election years (1988-2020)
The median gain during this five-month period was +14.7%. The one losing period was 2008 when the fund lost -12.0%.
Summary
So if the indicator detailed in the linked article – and displayed at the bottom of Figure 3 below peaks and closes a month lower than the previous month it could offer a bullish alert for investors in the financial sector.
Figure 3 – Ticker FSRBX (Courtesy AIQ TradingExpert)
Jay Kaeppel
Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author. The information presented represents the views of the author only and does not constitute a complete description of any investment service. In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security. The data presented herein were obtained from various third-party sources. While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Past performance is no guarantee of future results. There is risk of loss in all trading. Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance. Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.
