From the loathing inspired by the Facebook FB IPO to persistent worries about the fallout from a Greek exit, or "Grexit" from the euro, it's hard to blame traders for being loaded for bear at the beginning of June. And now add to that a jobs report that redefines the word "dismal."
Based on sentiment alone, it's hard not to want to fade the negativity. Down three in a row, trading at new two-week lows, and technically oversold at midweek, shares of Facebook rallied 5% on Thursday. Falling oil prices � the United States Oil Fund LPUSO is trading at its lowest level since October � are helping boost transportation stocks, especially airlines.
Stocks like JetBlue AirwaysJBLU were up more than 9% ahead of trading on Friday, the most recent leg higher in an advance that has JBLU up for seven out of the last eight sessions. Also moving higher � and potentially due for a short-term pullback, by the way � are Delta Air lines DAL , United Continental UAL , and Alaska Air Group ALK .
If the market is going to hold at or near current levels (i.e., the 200-day moving average) and advance into June, then it is going to take technology and/or financials to do it. And while tech stocks like Google GOOG have slipped back into bear market territory and are closing in on year-to-date lows, others on the telecom end of the technology space like AT&T T and Verizon Communications VZ are trading at their highest levels of 2012.
One option for traders looking to avoid single stock risk is the Select Sector Technology SPDRS ETF XLK , which has pulled back for four out of the past five sessions including Thursday, when the fund ended the day technically oversold. As of midday on Friday, XLK was still trading above its 200-day moving average.
By comparison, the Financial Select Sector SPDRS ETF XLF was trading fully in neutral territory before Friday's big selloff, having closed higher for six out of the last eight trading days. Friday's selling was more severe here than in the technology space, sending the XLF into oversold territory and into bear market territory. The break also takes XLF below a recent, short-term range of a little over a week.
XLF includes a cross-section of financials � from Goldman Sachs to American Express � among its holdings. But regional banks, which do not have the sort of exposure to either European markets (I'm talking about you JP Morgan Chase) or IPO underwriting controversies (that would be you, Morgan Stanley), have been a favorite among professionals looking to take advantage of a potential market move higher.
Heading into trading on Thursday, Fifth Third Bancorp FITB was a good example of the kind of regional bank that traders might want to keep an eye on. FITB had closed lower for three out of four trading days, was technically oversold, and trading at new, 10-day lows. The stock is pulling back sharply on Friday, down more than 5% intraday and is back in technically oversold territory.
Other regional banks that remain near extreme levels but have yet to attract the attention of buyers include PNC Financial Services Group PNC , Fulton Financial Corp FULT , and Washington Federal WAFD , all of which traded lower on Friday. (Full disclosure: I've banked at Washington Federal since 1999.)
According to the Stock Trader's Almanac , banks do not have historically strong seasonality in June. But to the extent that stocks have already pulled back significantly over the past month (including the XLF, down more than 12% from late March high to late May low), and that the financials again are used by traders and more active investors as the best tools for a strategy of buying what's been beaten up, it is possible that the typical weakness in this group is already here and that surprisingly strong pricing lies ahead.
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