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Regional Banks' Weak Performance Is a Warning

NEW YORK (TheStreet) -- At the beginning of the year Wall Street expected our nation's banks to lead the stock market higher. This was the case until the Financial Sector SPDR Fund (XLF) continued higher and peaked at $22.16 on Jan. 15 then declined to $20.50 on Monday just above its 200-day simple moving average at $20.39.

With Monday's stock market weakness the percentage of overvalued stocks fell to 72.6% from 79.7% on Friday still above the valuation warning threshold of 65%. The percentage of stocks overvalued by 20% or more fell to 29.4% from 42%.

The finance sector is 17.1% overvalued with an equal-weight rating as 82.7% of all stocks in the sector have hold ratings according to

Whenever I believe a market or sector is vulnerable I look to the weekly chart profile. The weekly chart of the Financial Sector SPDR Fund XLF ($20.53) shows that the rally failed at the 61.8% Fibonacci retracement of the decline from the first half high of 2007 to the low in March 2009. This level is $22.07 vs. the Jan. 15 high at $22.16. Friday's close ($21.06) was below the five-week modified moving average at $21.42 with its 12x3x3 weekly slow stochastics declining below 80.00 which defines a negative chart. My semiannual value levels are $20.24 and $19.44 with a monthly pivot at $21.42 and quarterly risky level at $23.38.

Courtesy of MetaStock Xenith

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