The financials have led the rally, and Berkshire has trailed significantly, underperforming the
by 27% and the related "large value" index by 16%. The S&P 500 is approaching the 50% retracement level of the October '07 high and the March '09 low.
It is interesting to compare leaders and laggards at important inflection points in the market and to look for divergences or similarities in price action. In this case, more so, because Berkshire represents deeply embedded value and, although "value" lags in the economic cycle, it is a good proxy for the longer-term health of the overall market. The financials have been center stage during the turmoil of the last 18 months.
The financial sector and Berkshire have been on divergent paths since the March low, but in recent months the laggard and the leader are in a similar technical place.
The price action in the financials flattened in September and has since bounced along technical support in a range. The sector has underperformed the S&P 500 since October, and in recent weeks the multimonth support level looks to be in jeopardy. This breakdown coincides with the $13.90 area on the
Financial Sector Select SPDR
The chart of Berkshire shows a similar consolidation period and the recent violation of an uptrend line defined by the March and July lows. The next area of support is the $95,000 level and the 200-day moving average.
This reversion of the financials and the technical similarities with Berkshire all play out in the context of the S&P 500 testing resistance at a major 50% retracement level. This is an important confluence at the core of the market in an interesting technical moment. The gravitational pull of the massive Berkshire "value" model may bring the financials back to earth, and there may be a reversal of roles.
In any case, the recent action in the financials alone, just on a percentage basis relative to the S&P 500, is significant and, at current levels, may have important implications going forward.
Robert Moreno is a former member of the New York Cotton Exchange and the New York Board of Trade. He has traded for his own account for over 25 years. An experienced market technician and student of the art since the days of paper charts and manual computation, he authored a daily technical analysis information sheet popular with brokers and traders in the "pits." Currently, he is a General Partner at Wyckoff Investment Partners, LLC, which provides technical and fundamental research and analysis to traders and investors.