Financials Close Off Of The Lows To Make Possible Short Term Bottom

The S&P closed a few points above the even number level of 1300 which is typical of an options expiration week since whole even numbers are closely associated with strike prices, and what better level is there than one that ends with 00? I think the big story for the market’s activity next week will be the financial sector as many of the major banks were beaten down hard last week and are close to the lows of their respective charts. I will most likely play the long side of the financials next week for a short term bounce, and I believe that it is also possible that this translates into a rally in the overall market.

I have a short term level for the S&P at about 1306 which is a level that was tagged on Thursday and one that the market stayed above on Friday. This is by no means a major pivot but I think it may serve as minor support as the market consolidates off of the highs. Additionally, the 20 and 50 MA’s are beginning to scoop underneath the price activity and the 20 MA is already above 1306. This forces me to favor the upside and it is likely that the market is now putting in a higher low.

Using 1258 as the high and 1356 as the high, the market has made a 50% retrace of the Independence Day rally (1258+1356 = 2614/2 = 1307). The close yesterday was 1308 but the low of the day was at 1307.52, which is almost exactly 50% off of the high of 1356.

Bank of America has now pierced the $10 level on the chart and has made a bit of a bottoming tail on the daily. It sold right into this level without previously consolidating which means that it is valid for a long play as long as it stays above yesterday’s low of $9.88.

BAC has earnings on Tuesday so I don’t advise holding the stock into the announcement, however I’d still favor the upside as it has sold into earnings and is already at the bottom of the chart which tells me that any bad news has more or less been priced in already.

GS pierced $130 and has now made a higher low off of the bottom that was set in late June. This looks like a bullish setup for a long play, first target is the 20 MA, I would look for it to hit about $132.50.

Similar to the chart on GS, JPM has made a higher low after a nice double bottom. It closed negative on Friday but made a lengthy tail on the daily chart which suggests that a short term bottom is in as long as it stays above Friday’s lows. The target for a bounce should be about $42.

Probably the best chart so far is the XLF. Good series of higher lows and a possible bottoming tail from Friday’s action. Upside target is the pivot low of $15.34 which would also be a pierce of the 50 MA. There is nothing fancy on any of these charts and none of them should suggest anything more than a one to two day swing trade. For this reason, I like the FAS for added leverage to the possible bounce. Use XLF as a proxy for FAS since FAS is leveraged and does not accurately represent levels on the chart.

I am looking for a gap lower tomorrow that stays above the $14.73 low on XLF, if this happens I will most likely go long the FAS and possibly another sector ETF (maybe QLD, SSO, TNA) that represents the overall market depending on where the SPX ends up after the opening bell.

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About Aaron Basile
Market Technician, Equity/Commodity Trader, Austrian Economist, Contrarian Investor

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