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The carnage in financial stocks last week was the worst or worse than expected and volatility levels in the bond market remained at peak levels. Kit Jukes, FX analyst at Societe Generale, commented that “these levels of bond market volatility are dangerous and unsustainable.” The MOVE index, which tracks the volatility of US Treasuries, has reached levels last seen in 2009.

This is evident in the long-term monthly chart of Yahoo/Finance’s MOVE index. The index closed at 180 last week. It reached a high of 223 in December 2008 but I am not making any analogy as there are many differences between 2008 and now.

Record-breaking price action always unsettles parts of the market segments and is more so now. The potential for a decline in yields was exacerbated by the fact that in early February COT data showed that hedge funds held “massive short positions in two-year US Treasury futures”. The data submission to COT was delayed last month but my charts indicate a decline of over 250,000 contracts in Open Interest.

It was not surprising that the SPDR S&P Regional Bank ETF (KRE) closed last week down 14% at $43.44. on March 3third, KRE closed at $60.38, so it has seen a decline of 28% in the last two weeks. Of course, banks in the cross hairs like First Republic Bank (FRC) have fallen 81% over the same period. This is a good example of the comparative risk and reward of ETFs versus individual stocks as FRC KRE holds 1.7%.

The mixed performance of major markets has been the surprise of the past week. The Nasdaq 100 Index was up an impressive 5.8% and is now up 14.4% year-to-date (YTD). The gain was nearly matched by the 5.7% gain in the SPDR Gold Trust (GLD). The Dow Jones Utility Average was up 4% but is still negative YTD.

The S&P 500 was up 1.4% for the week, although it was down 1.1% on Friday. Last week’s 3.1% decline in the Dow Jones Transportation Average is slightly worse than the 2.8% decline in the iShares Russell 2000, which is down 16.5% in the financials sector.

It was another negative week for the NYSE market internals with 942 advancing issues and 2273 declining issues. The December low at 14,886 that was targeted last week has been breached as the Stark-band was crossed. The 20 week EMA has moved down to 15,343.

The NYSE All Advance/Decline line has now closed below support at line c after breaching its WMA. This is a normal development after a year-long downtrend, line B, was broken at the beginning of the year. A very strong multi-week rally is needed to reverse this decline.

The Invesco QQQ Trust (QQQ) chart looks very different last week after a strong close above the previous week’s highs. The weekly Stark+ band is at $327.07 and 50% resistance is at $331.49. The daily chart (not shown) shows the monthly R2 at $308.14 and the daily Stark+ was crossed on Friday. This suggests that we could see a pullback to the pivot point at $299.10 and the rising 20-day EMA at $297.55. The $285 area is a weekly chart support.

The weekly Nasdaq 100 A/D line has turned higher but is still well below a key downtrend on its WMA and line B. Weekly Relative Performance (RS) moved above its WMA on Jan 27th which indicated it was leading the S&P 500. The downtrend, line c, was subsequently overcome with the RS rising sharply last week.

It was a mixed week for sectors as six were over 1% led by a 5.26% gain in the communication services sector (XLC) led by a 5.66% gain in the technology sector. The other top four performing sector ETFs had decent gains, even as the beaten-down Healthcare Select (XLV) was up 1.38%.

Among the losers were the energy sector (XLE) as it was down 6.85% for the week, worse than the 5.92% decline in the financial sector (XLF). Two of the favorite ETFs for early 2023, Materials Select (XLB) and Industrial Select (XLI), also had significant losses. It breached the crucial support last week which could trigger additional selling.

The break and 12.7% fall in crude oil futures last week breached support till 2022. XLE moved below its weekly Stark Band, therefore becoming oversold as support on line B has also been reached. So far XLE is holding 2022 lows in the $65-$68 zone. The resistance for XLE is now in the $80-$82 area.

The weekly RS formed a lower level since last October and is now close to breaking the more important support at line C. Volume was the heaviest since last June and the OBV which recently made a new high has fallen below its WMA. There is major OBV support on Line D.

Both crude oil and energy stocks are likely to witness an oversold rally in the next few weeks. If the rebound is not accompanied by strong volume then it is likely to be a failed rally.

The focus will be on the FOMC meeting this week, along with concerns over any new developments in the banking sector. Some parts of the stock market are still oversold, so they may rally in the next week, while growth stocks may see some profit as many are overextended.

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