With our recent downtrend line being broken to the upside on November 14th near 10,650, the Dow Industrials have been shaping up. This index now faces its 50-period MA and when it was broken to the downside at 10,900 a nice pullback occurred. Watch this MA to get some attention from aggressive bears here.
S&P 500 Index Chart - 60-minute interval.
The SPX looks to be an attractive short here (see below first) with excellent levels of past support potentially serving as resistance and the 50-period (thin blue) close by. We'd be looking for a potential short here as risk/reward is favorable for the bears. This index has rallied quite a bit in the past two sessions and we'd be looking for a tradable move to the downside with a stop at 1,395. Risking 5 to make 10 or 15. If the market has "priced in" an election result, this bearish strategy here may pay rewards. Traders that are bullish should be snugging up those stops.
NASDAQ Composite Chart - 60-minute interval.
The NASDAQ Composite looks to be getting above its 50-period MA and this may actually be a bullish sign over the next couple of hours. We'd expect some serious resistance at the 3,300 level and this chart give us a "mixed feeling" regarding a short in the SPX.
Things to consider
It's not all that often that we see these three indexes look so similar technically. Traders can review the above charts and note MACD on all three charts their 50-period MA's. Isn't that remarkable! With the stars "aligned", traders can trade with conviction here. If MA's start getting broken to the upside and MACD gets above zero, we'd play the bullish side. If the charts start flattening out or breaking down and MACD rolls over, then bearish trades are in order. Watch the action unfold and be willing to participate!
Banks loan practices questioned
Shares of Banc of America (BAC) dropped over 8% in midday trading. Analyst at Merrill Lynch noted that BAC disclosed it would have an increase in fourth-quarter loan loss provisions, write-offs, and problem assets all of which relates to the recent $500 million loan to Sunbeam (SOC). BAC'S debt, which widened five basis points Tuesday and another ten basis points Wednesday, have caused bank spreads to come under pressure. Problem loans are on the rise at U.S. banks, analysts pointed out a slowing domestic economy have put the squeeze on large corporate borrowers. Merrill Lynch analyst Judah Kraushaar reported; the credit cycle appears to be worsening both in terms of the incidence and breadth of new problems. Kraushaar also said, "in our mind, Sunbeam loan is but one more example of credit erosion taking place currently in corporate credits.
S&P Banks Index Chart - last six months.
The Bank Index (BIX) traded down to the 200-Day MA (thin red line) at the 564 levels, before rallying back to 568.08. MACD is above the zero line but has turned over on this timeframe. This index looks to be in "no mans" land here, but traders that may have been shorting at our downward trending resistance may want to take some partial profits here. Last week we mentioned this index provided a low risk short trade with a stop above 620 and it might be time to take some chips off the table here.