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Is it a Rally without the Financials?

Major averages ended Thursday with decent gains. Looking under the covers, however, we see a market struggling to move higher.

The Conference Board's index of leading indicators rose more than expected and the Philadelphia Fed's index of regional manufacturing jumped 14 points to a strong 18.0 and bonds sold off a bit, raising the yield on the 10-year note to 5.15%. This may not have had much effect on the overall market but it did seem to impact the interest rate sensitive sectors of the market.

The financials sold off strongly first thing in the morning. The Financial Select Sector SPDR (XLF) and the KBW Bank ETF (KBE) managed to just get back above the flat line by the end of the day. REITs, as represented by the iShares Dow US Real Estate ETF (IYR), sold off even more strongly and, despite a valiant effort, still ended the day on a down note.

Contrast that behavior with the action in technology stocks. The Technology Select Sector SPDR (XLF) and the Powershares QQQ Trust (QQQQ), for example, started the day calmly and moved up steadily for the remainder of the trading session. Techs led the market today and turned in strong results.

At this point, XLK and QQQQ exhibit charts that show some consolidation while XLF and especially KBE and IYR are showing signs of complete breakdown.

Given that the financials comprise one of the largest segments of the overall market, I am beginning to worry that we are running out of steam. Can the markets continue to rally based on energy and tech alone?
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