In last Thursday's Index Trader Wrap, I thought that index bears were "banking" on a decline. We looked at the S&P Banking Index (BIX.X) 269.89 -0.09% as an index that might serve as a sector that would "confirm" the weakness, more specifically in the S&P 500 Index (SPX.X) 828.55 -0.13% and S&P 100 Index (OEX.X) 418.14 -0.13% as a financial sector that confirmed weakness on more of an "economic" scale of things, than "war related" type of event. The thought being that the BIX.X contains a group of regional banks here in the U.S., with more limited exposure to global markets.
We looked at the BIX.X as an index that might give some "confirmation" to a subscriber's thoughts on "fragile economy." While the "war with Iraq" issue has weighed on the markets, it becomes the thinking that the BIX.X may not necessarily find selling due to war-related psychology from market participants, but tend to trade more on "U.S. economy" conditions.
A key level of 269 showed up in last week's pivot matrix analysis, and the BIX.X never did quite trade that level of support. Today's action does have the BIX.X just barely edging under the 269 level.
I've left the retracement bracket on the BIX.X that was displayed in Thursday's Index Trader Wrap, but have placed this WEEK's levels on the BIX.X chart. Current action has me looking for resistance to be firming at the 273 level, with the BIX.X looking to fill a previous gap higher from mid-October to the downside and our 50% retracement of 266.78 and WEEKLY S1 of 266.10.
S&P Banks Index (BIX.X) - Daily Interval
I had left a "downside alert" set at the 269 level on the BIX.X from last week, and received that alert to weakness earlier this morning. The "rate of decline" is not sever, but does hint that supply is still outstripping demand in the regional banks.
Subscribers have sent me email that Stockcharts.com's symbol for the S&P Banks Index is ($GSPBK). I've performed other relative strength tests with the banking indexes and they are more bullish that bearish and showing good relative strength. In a way, this hints to me that the financials are being weighed lower on broader market weakness and not LEADING the declines. However, this is why I call today's weakness in the BIX.X as "confirming" weakness as it follows what we've been noting in the major indexes.
As such, I'm not a BIG put buyer of the BIX.X or financials, but would only be smaller positions, as they aren't LEADING the weakness. Should market indexes strengthen, I would also monitor the financials and BIX.X for LEADERSHIP. If they don't lead strength on a technical basis, then I begin to think the "strength" in the major indexes is simply short-covering and taking of profits by bears, and not necessarily bulls doing the buying.
Current and recent market action hints to me that the MARKET is discounting "war-related" fears or concerns and not necessarily trading lower on U.S. economic issues. Should the financials see greater selling pressure, THEN I would begin to think economic issues are becoming more of a concern to the MARKET.