Friday, July 16, 2010

Banking sector can lead the stock market to the downside

If we have any "Chicken Little" aspects to our personalities, that was gratified today! This was a delayed (in my opinion), overdue response to the market trying unsuccessfully to mount above $SPX 1090 and 1097 and the key moving averages. There's even a bearish cross under the 200 dma by the 50 dma to add to the S&P 500 and overall stock market malaise (there's a nice French word, just a few days after Bastille Day). Can't believe I've been so swamped with other matters that I allowed opex topics to slip past! Many factors contributed but the banks which I posted on last week are a major one.

If you look back at that, it featured the big-picture view by Chart of the Day of a parallel channel from which the banking sector recently bounced from support. I'd commented that we need to be careful if it retested and failed under that support. That hasn't happened yet. But the $BKX as well as general stock market $SPX has rolled over on the daily chart, and remains stuck in weak-looking mode on the longer-term chart's technical indicators. I'm not saying that the bankng sector and stock market will make new lows. But I am saying that the overall pullback can test lower levels. Obviously now, we'll gave to see whether or not $SPX 1060 can hold. If it does, we might actually see something more positive. Otherwise, we may see the markets search for much lower support.

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