Keystone's 2-10 Spread Indicator

The financials are influencing broad market direction greatly over the last few weeks.  XLF dances one day on the bull side, the next on the bear side, but trending lower overall.  More negative news for GS this morning so perhaps that will push financials a bit lower after the open.

The 2-10 spread is falling inch by inch, day by day, the 270's was solid territory for weeks, the greater the spread the happier the bankers.  Keystone uses a 255 spread value as the line between happy bankers and sad bankers.  Financials benefit from the steeper curve so once the 2-10 spread climbs above 255 and higher, the good times roll.

The quandry of late is that the spread has maintained a positive posture but the financials have been drifting and trending lower.  The financials should be happy now so either the XLF stocks are underpriced, or, the spread will continue to fall to go sub 255 and confirm that the bank weakness will continue.

The spread has moved down in the last few days from 270's, to 271, to 269, 268.  As of this writing, 325-62=263 basis points, now only 8 bips away from where the financial stocks and the lower 2-10 spread will be in sync verifying that further bank weakness should be expected ahead.