The Securities Broker Index (XBD.X) is taking a beating today after Merrill Lynch warned that second quarter profits would be significantly lower. The brokerage firm trimmed its earnings estimate from 82 cents a share to 52 cents a share due to weak equity and debt trading, and selling has spread through the sector.
Securities Broker Index Daily Chart
The Broker Index had been trying rally after giving up 50% of its April gains, but was having trouble getting above 500. Now we need to see if the index can hold at the support area between 470 and 478. Even if brokers can hold at that level, they now have a mountain of technical resistance to overcome in the future. We have a short, medium, and long-term downtrend to deal with, the 50 and 200-dmas, and previous highs at 500 and 571. The only noticeable support level below 470 is the 61.8% retracement bracket at 456.
Merrill Lynch Daily Chart
Merrill had gained $7 in five days, the 50-dma had crossed above 200-dma, and the MACD was starting to roll up. Technically, things were looking pretty good except for the downtrend looming overhead. The fundamentals quickly changed that picture, and Merrill is now fighting to hold above $60. The April up trend is trying to stop the decline today, but $60 is the key support area. It is the top of the double bottom, a series of lows that stopped previous declines, and a level that needs to hold.
10:30 EST Update
Lower risk bull might like Dow Industrials
The Dow Industrials are rapidly approaching a bearish price objective we calculated last week from the point and figure chart and we did see the INDU get a bounce at the 10,405 level this morning. A bullish trader looking for an index to perhaps trade ahead of the Fed might find the bearish count and upward trending bullish support as an attractive level to enter a trade with a stop just below. The risk/reward is favorable for such action as long as a trader is disciplined with their stops.
Dow Industrials Chart - $50 box
There are a couple of technicals in the Dow Industrials where it makes some sense for a trader to be looking long the Dow Industrials near the 10,350-10,400 level. An aggressive Fed cut could see the INDU rally to the 10,900 level.