Banks Rebound: The Market Recoups Losses
The market was hacked again on Friday as volume
swelled and stocks deflated. The decline concluded a week full of
declines in the market. In fact, it also marked the sixth straight week
of downward price action in the indices - a streak the market has not
recorded for 10 years.
The selling took SPX through 1280 support and propelled it closer
to the must hold 1250 zone - an area we mentioned as a likely target once
1301 broke. Now it's all about 1250 and everybody (even the TV hosts) I
speak with or read from has 1250 as a support zone to watch. And
everybody is watching this support area for good reason.
While it is an easy support area to spot, it has a lot of meaning
to traders. A breakdown through 1250 does two things. First, it would
take SPX through the March lows. The breakdown through that swing low
confirms what I already held to be true in February (that
the bullish trend was over) and opens the door to a 7.5% move lower
this summer. Secondly, the 200 day moving average is 1253 and increasing.
So a breakdown through 1250 would pierce the moving average and also
confirm a bearish trend. Although I believed in
February that the rally from August was over I have traded with a bullish
bias. But that would likely change if this level of support is
busted.
Miraculously, the big banks held up well on Friday. Goldman (NYSE:
GS) JPMorgan (NYSE: JPM) and Citi (NYSE: C) were able to record slight
gains despite a 1.5% decline from the indices. Banks have been the
hardest hit industry during the most recent decline. While we do not have
direct exposure to any of them in our portfolio, the strength from the
big banks last week was great to see. If the market is going to rally,
the banks need to participate. The rally on Friday from the big banks
indicates the selling pressure is easing on this sector. I expect banks
to be sideways this week with a slight bullish bias, which should add
some stability to the market.
Another sector that is on our must-watch list is
energy. For the past three weeks we have patiently watched crude oil find
resistance at $100 and support at $97. My upside target is $108 on a
break out, and my bearish target is $90 on a break down - both of which
would likely be hit quickly once a new trend is set into motion. With two
of our bullish trades tied to oil, I am preparing for a bullish move,
although it is a gamble.
The market is up against a strong (and must hold) area of support.
In the near term I would expect to see a rally, but the bulls will need
to do more than just hold support. The indices have fallen through a
number of support levels on this six week decline. The bulls need to
stabilize the market within the next few days and start to take out areas
of resistance over the next 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. The weekend video "Market
Review" goes over areas of support and resistance to watch in greater
detail.
