It's official. The coldest corner of the market has now given back 10 percent from its recent high, and is thus officially in a correction. While the month of May has shaved about 3.5 percent off the S&P 500, the retreat by financials —- specifically the big banks and brokers —- is now three months old and three times as harsh. But before you go in to try to buy on weakness, you might want to hear what technician and proven money-maker John Roque has to say.
"You want to be out of these [big banks and brokers] for the next eight to ten years," the WJB capital managing director says without blinking.
"Once broken, they go through 'growth purgatory'," he says, adding that "when you transition from a growth stock to a value stock, that takes a long, long time." Think 10-year charts of Cisco or Microsoft here, and you quickly get the idea.
Take Goldman Sachs (GS); the onetime darling of all things financial has found itself in a four-month selloff that's so far taken 20 percent off its market value (that's official Bear market territory). This is important, Roque says, because of what it says about the sector. "If Goldman is not working, it shows just how difficult it is for the sector. It just doesn't win."
And it doesn't end there. Roque is equally concerned about Citigroup (C) and other diversified financials, calling them "value traps." Even though he concedes that there will be traders who will be able to make money within this sector, for him, they're just to be avoided.
Now if you're thinking this all sounds a little crazy or extreme, Roque quickly points out that lost decades within the sectors are far from unusual in the land of plenty. He cites energy's 20-year fall from grace starting in 1980, as well as the bursting tech bubble that saw that sector's weighting in the S&P 500 cut in half from a peak of 33 percent in 2000.
So pay attention, bargain hunters. Before you try to pick the bottom in banks, take your time, have a listen to the clip and let us know what you think by commenting below or sending an email to Breakoutcrew@yahoo.com.
- S&P 500
- Bear market
- growth stock
- Goldman Sachs
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- managing director