These days it can be pretty tough to get a read on market sentiment, which can change on a moment's notice based on events in Iraq. Suffice it to say there's a lot of buyer's remorse on Wall Street following a massive rally that was predicated on a quick end to the war. A slew of negative non-war stories (including renewed accounting worries at AOL) aren't helping matters today.
But while some sectors (especially the techs) often trade capriciously based on daily news, the financial group tends to give investors a better idea of what the major Institutional players are really thinking - particularly from a long-term perspective. If mutual fund managers aren't anticipating an economy recovery down the road, they'll be more hesitant to invest in banking stocks.
Jeff Bailey gave us an in-depth analysis of the BIX.X banking index in his February 6th Index Trader wrap
His pivot matrix and technical analysis led to him to conclude that a break below 266 would be a severely negative development for the bulls. A brief test of that level on February 13th was met with buying. But the bulls weren't so lucky on March 10th, when a move below 266 prompted a heavy round of selling. The BIX.X moved sharply lower until it bottomed out with the market near 252. The subsequent rally came to a dead halt at the 100-dma.
Annotated daily chart - BIX.X:
The index has already retraced more than 50% of its rally from the March lows and looks to be on a crash course with the 252-255 area. But despite the lack of underlying support, the bears aren't really taking advantage of today's market weakness. The BIX.X is currently showing a 1.0% loss. That's slightly better than the 1.2% decline in the Dow Industrials. Intraday support has cropped at 264.50. Interestingly, the BIX's weekly S1 lies just below at 264.21. A break through that level would raise a warning flag for traders anticipating a Dow rebound from 8000.
In late trading this afternoon, the major indexes have pared some of their intraday losses in response to a news report that Coalition forces have secured the oil fields in Northern Iraq. There are also reports that the U.S. has secured several key bridges near the Euphrates River. Will these developments provide enough fuel for a sustainable bounce into the closing bell? A bear would argue that because the market is more concerned with the looming battle for Baghdad, buyers will continue to sit on the sidelines until the uncertainty fades. But on a technical basis, a case could certainly be made for a short-term bounce. The Dow has rebounded from support at 8000, in addition to its 21-day and 50-day moving averages. The 5-minute chart shows a fast-move region created by the morning sell-off. Bulls will be looking for the index to break above 8050 and move towards the 8100 level, which previously acted as support.