Banks Destroyed: Crisis Looming? (C BAC JPM)
The market was hit hard again yesterday. Volume raced higher as all major indices plunged at the open. Perhaps the worst (and most telling) aspect of the decline is that it occurred on no news.
News flow from across the globe, from Japan to the U.S., was minimal yesterday. Despite the lack of news-flow, the market tanked again.
Strong selling without immediate causation is a warning sign. And it is an indication that the market's true desire is to move lower.
Sometimes when news is insignificant the market will decline, but volume will also be light. That is not what happened yesterday. Participation was high in the market, and the indices forcefully moved lower. Such a firm display of momentum indicates that the bears are in control of this market - and the bulls need to take it back.
The bears took out 1301 support yesterday, which we expected, but oil also lost its support, which I did not expect. It is not a coincidence that both occurred on the same day. As mentioned last week, a strong rally in oil was the market's only chance of holding 1301 and rallying. At this point the bulls need to make a stand at either 1280 or 1250 to have any chance of moving higher over the next few months. A break below 1250 signals a much more bearish move is on the horizon, and confirms a larger bear trend began in May (again).
Financials were also clobbered in yesterday's decline. Big banks like JPMorgan (NYSE: JPM) Citi (NYSE: C) Bank of American (NYSE: BAC) all feel over 2% and are down nearly 10% each in the past week. Financials do not need to lead a rally, but they sure need to stabilize if the market is to maneuver itself higher. For the last month I have held the belief that the market would go higher one more time, to 1377, and then top for a few months. But based on the inability of the bulls to garner any strength, and the weakness from oil despite a weakening dollar, it is possible the market has already topped for the summer.
While the movement in the indices over May does not look like a top, it is acting like one. From relentless moves lower to large and unpredictable gaps down, the indices have acted very bearish over the past two weeks.
The TradeMaster portfolio is properly hedged to fend off a large decline. But it stands equally ready to add new long positions on appropriate market weakness. A second weekend video "Stock Recap" highlights setups, both bullish and bearish, that you should consider this week.
