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Thursday, September 4, 2008

Financials: Where Will the Rally Stop?

Cobra over at Cobra’s Market View raises a very interesting point: “Look at this chart, XLF has rallied for 6 six days and this never happened before. I feel reluctant to say it is overbought and due for a pullback tomorrow. But in term of probability the pullback will happen for sure. I don't know if XLF can help the broad market to rally. If it pulls back, how can the whole market rally?”

Click here for Cobra’s annotated chart of XLF.

The Philadelphia Bank Index (BKX) is sitting at the trop of its trading range. After being up the last five of six trading days, BKX is shooting into overbought territory. Overbought conditions didn’t last long the last few times during this general down trend. MACD is registering a decrease in upward momentum.

With a little more time, a confluence of resistance put a lid on prices around the $75.00 area. The declining 200 day EMA (green line) and the declining trend line (black) will converge upon resistance around $75.00 (horizontal red).

For any of this to come into play, BKX must first break out of the current trading range of about $71.00.

Regional Banks (KRX) bounced 60% from about $44.00 to about $71.00. The declining 200 day EMA (green line) acted as resistance. As long as the recent high of $71 holds, expect an eventual test of the lows around $45.00.

The ProShares Ultra Short Financials (SKF) is sitting on support between $106 and $110. (Remember, this is a derivative of a derivative and as such technical analysis isn’t nearly as reliable.) It currently looks like prices have popped temporarily below the 200 day EMA (geen line) like they did twice before.

Current price action does not yet concern me. A decisive close below $106 would give me pause. Realistically, SKF would have to break through the last major low around $90 before the ‘Bear Market’ in Financials can be challenged. Obviously, not many a trader would be able or interested in holding to that point…

BAC is going to come up against a confluence of resistance around $34.00 where outright resistance (horizontal red line), the declining trend line (black line) and the declining 200 day EMA will all meet up. With prices now overbought, and up volume still anemic, it is probable that resistance will hold.

4 comments:

Greenlander said...

Ben,

Nice work. I really like yr call on commodities some time ago. I got a SKF chart also which points towards a bottom there. VIX looks like it has decisively broken out of its down pattern.

http://greenlander1.blogspot.com/

Anonymous said...

In addition to BAC reaching technical resistance, they have yet to settle their ARS debacle. See Bloomberg's Bank of America Must Settle Probe or Face Suit, Regulator Says. Wachovia got hit by this a month or so ago and BAC was a bigger ARS dealer/underwriter.

-Mike J

steve said...

Hey, I really appreciate your following up on my comment with a financials post...especially the SKF chart.

Obviously I'm feeling a lot better after today. It's looking like you and Tim Price will have helped make me a lot of money this year (along with Mish and Roubini in a more general sense). I'm probably want to get a mailing address so I can send you a proper thank you present.

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