The current action we're seeing in the bank and brokerage stocks doesn't look good. It might be some "defense" being played by institutions ahead of this week's Consumer Price Index (CPI) numbers, but traders and investors should be alert.
Securities Broker/Dealer Index Chart - last eleven months.
The last two sessions have had my workstation setting off downside alerts in the XBD.X at its 50-day and 200-day MA's. The next level of "support" could be found near our long-term upward trend near 525. There are some "ugly" looking charts in the group.
Goldman Sachs Group Chart - last eleven months.
One of the "ugliest" looking charts (depending on what side of the trade you're on) might be represented in Goldman Sachs (NYSE:GS). A subscriber brought this to my attention a couple of days ago and it sure looks like a head and shoulders top. The pattern wouldn't be "validated until a trade at $75 to $80. It's a tough one to be shorting here, but look for a rally up in the low $100's near the 200-day MA as another potential entry level. If the head and shoulders pattern is "validated", we would take the neckline near $80, subtract from the "head" at $130, and then subtract that difference from $80. I calculate a $30 price objective and one could perhaps envision that stock at that level should we experience "stagflation." Again... don't use the word "never" or "always." Keep this one on your "watch list" as a potential short in the low $100's and try to use the 50-day MA and developing downward trend to your advantage. Let the trade come to you!
Remember this chart?
It was back in October that we alerted traders to a REVERSE head and shoulders pattern in shares of United Technology (NYSE:UTX). Now look what has taken place. Sometimes it takes time for them to achieve their targets, but the head and shoulder pattern is a favorite among market technicians. Especially when the neckline gets broken!
United Technology Chart - Weekly Interval.
Back in October we liked the reverse head and shoulders pattern in shares of UTX. The stock was also in a group that was reversing itself in our bullish percent indicator in the aerospace/defense group!