BigTrends

The Banking sector, which has been lagging for months now (I've previously commented on its underperforming range) has shown some interesting signs of strength thus far in 2010.  Take a look at the chart of the PHLX Bank Index (BKX) below:

BKX Daily Chart


You can see that the recent move higher has sprung Percent R and Efficiency Ratio to levels not seen in some time.  Additionally, the slope of their upward spikes is impressive.

Bank sector should be considered for a momentum upside play ... longer-term fundamentals remain iffy, in my view.  Additionally, keep in mind that Percent R has not yet broken 80 on the BKX Daily Chart, which is a key bullish threshhold in our analysis.  Also, we are right at the Top Acceleration Band (purple lines), which is also a key technical area.

The Bank Sector (and larger Financial Sector) has often led the market in both directions over the past few years.  Recently, we've seen the Bank Group break down significantly, underperforming most other market groups.

If you examine the chart of the PHLX Bank Index (BKX) below, you can see that we have broken down below the recent slightly uptrending range.  In addition, Daily Percent R has plummeted to bearish territory.

Bottom line, I'm concerned that weakness in the Bank Sector is telling us something ... and may spread to other Financials and the overall market, leading to continued near-term weakness in the major indices.

BKX Daily Chart

The amazing market rally continues, now three months strong.  While the indices have mostly moved sideways for the month of June, the impressive thing is how much support there is at each drop.  Dips are bought without any fear.  Speaking of fear, the VIX is threatening to break lower yet again, perhaps into the low 20's as pressure from the moving averages hover.  The rotation is something to marvel at;  Wednesday it was commodities, oil, metals and staples...while financials and tech took a breather.  The late day push hit again...and while the indices were negative on the session the damage was limited.

BankUnited FSB was seized on Thursday and is expected to cost the FDIC around $4.9 billion, marking the 2nd biggest FDIC hit after IndyMac last year.

TXN is experiencing some heavy options volume today.  The October 20 Puts traded 25,000 contracts.  Based on the price paid it looks like they were bought not sold (transaction price is above the ask).  It is noteworthy that TXN is coming up to the venerable 200 day EMA which may be resistance...

The Fed basically did not change a thing with their statement, except they continue to buy more 'stuff' with the expanded balance sheet.  One thing that was interesting was the 'quiet' stimulus released by the Govt.  Simply put they have thrown another bone to the consumer with the following:

We've seen over the past couple of weeks some great strength, and even yesterday's bullish close was another reason we can 'trust' this market.  Sure there is uncertainty out there, namely this stress test stuff.  But that uncertainty will be removed in a week or so, and really what don't we already know?  If a bank passes the test they are safe, if a bank fails they will get more capital. 

Banks are blowing up left and right here, gains from the previous six week are vaporizing in minutes and hours....akin to taking the elevator up and the window down.  Are these still trading vehicles, or true investments?  It's clear the former is true for now.  A big move higher in volatility yesterday was a reminder that the bear market still lives on.

Seeing some sluggishness following a long weekend, which is ok...frankly, I would suspect some mild pullbacks this week, nothing too severe. Expiration week generally goes the way of the prevailing trend, and 5 straight up weeks means that trend is higher. Financials are starting off lower on some downgrades, but it's early!

Today's rally extension took the indices past some significant resistance.  I had been watching that 833 level for a close, and it certainly did so in a big way.  Financials were quite impressive, but moreso was the action in the ultra etfs.  These have become the subject of quite a bit of controversy lately, but what's interesting the action of the market.  This is a double-edged sword, and we saw how that works in the last 30 mins in favor of the bulls.   This being a short week, this was the fifth consecutive up week.  Upcoming is a flurry of earnings and options expiration, which always makes for some interesting action.