By Andrew Nyquist
Technically speaking, the Bank Index (BKX) has been weak for some time. We had the September/October double top tails followed by a weak rally attempt that formed a right shoulder of sorts… then came the election. And since November 7, it’s been all downhill.
To be fair, the banks did leap 25 percent from the June lows to September highs, so a pull back of some sort was definitely in order. But the thought of a grid-locked government heading into yet another “fiscal cliff” drama was too much for investors to take and pushed the pullback into stealth correction mode.
So where’s the support and what should investors look for? Well the index has now dropped over 10 percent into a confluence of support and resistance pivots (blue shaded band below). This zone came into play late last week, stalling the decline on Thursday and allowing for a bottom reversal on Friday right at the 50 percent Fibonacci retracement level. Note as well that Friday was also bar 8 of a perfected DeMark 9 daily buy setup. This should provide a bit of a support floor during the holiday week.
But the banks are not out of the woods by any means. Even with some expected rally continuation, the drop in the Bank Index was so sharp that the lows will need to be tested. So keep an eye on Friday’s lows as well as the bottom of the support zone around 46ish.
I’ve also included a chart of the Financials Select Sector (XLF) for added reference.
Trade safe, trade disciplined.
Bank Index BKX daily chart:
Financials Select Sector XLF daily chart:
No position in any of the securities mentioned at the time of publication.
Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.