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Bank weakness has us on the alert!

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Shares of Wells Fargo (NYSE:WFC) $26.67 -8.66% are notably weak today and this has the S&P Bank Index (BIX.X) 131.67 -6.91% atop today's list of sector losers.

In this afternoon's Market Monitor, I've been quickly updating traders on the implications and rather negative reaction to news out of Wells Fargo that it has borrowed $6 billion from the TARP, which certainly looks to have drawn a negative and cautious reaction from market participants.

Here's some work I did on the S&P Banks Index (BIX.X) today, where I'm using the Pivot analysis levels to try and assess the situation and its implications.

The first thing I started walking traders through was to place a QUARTERLY Pivot retracement on the BIX.X to see if any levels were in place to begin assessing RISK to. I also have two near-term trends on the chart.

S&P Banks Index (BIX.X) - Daily Intervals

[Image 1]

In last night's Market Wrap, I thought the NDX/QQQQ would be the "chart of the week," but today's news and BIX.X reaction gets my attention.

I can see the BIX.X stopped dead in its tracks on Monday. I know the financials are a HEAVY weight group in the SPX and I think we need to assess the NEGATIVE implications of the current weakness.

Next I added a MONTHLY Pivot Retracement. All the time, I'm trying to "tie" in the BIX.X with the SPX.X action and levels we've discussed. Even with the reverse h/s pattern.

S&P Banks Index (BIX.X) - Added MONTHLY Pivot Retracement.

[Image 2]

With the MONTHLY Pivot retracement added, we can quickly see the BIX.X has falling below its MONTHLY Pivot (141.23) and we KNOW the SPX.X has been holding above its MONTHLY Pivot. But right now, the BIX.X provides a DRAG.

As we got from a "bigger picture," I want to "zoom in" on the BIX.X, and turn on my QCharts' WEEKLY Pivot levels. I will eventually tie this into our SPX.X analysis.

S&P Banks Index (BIX.X) 60-minute intervals

[Image 3]

What I begin to asses near-term is the IMPORTANCE of the old downward trend. If it DOES NOT hold buyers, then BIX.X PRICE action becomes vulnerable to EACH level below.

The MAJOR near-term level of support is that PINK "overlap" at around the 123.50-ish level. But to get there, BIX.X needs to fall below $129.35, $126.57.

I also note that the BIX.X up at $153.88 and its WKLY R1 on Monday, could NOT have HURT the SPX.X rise.

Now, let turn to the S&P 500 Index (SPX.X) itself. Remember, FINANCIALS and ENERGY are the two largest weightings.

S&P 500 Index (SPX.X) - 60-minute intervals

[Image 4]

Now I'm showing you some of the U.S. Market Watch and I've made some quick notes as to the FINANCIAL and ENERGY sectors.

See the PULL LOWER in the BIX.X and the PULL HIGHER in the energy complex?

This has the SPX still "range bound" between its MONTHLY Pivot and its WKLY R1.

However, since we're ON THE ALERT to the weakness in the WFC, which is providing a catalyst for some weakness in the BIX.X, this would have me a more CAUTIOUS BULL in the SPX.X.

Especially if the BIX.X weakness builds further.

Either that, or to remain MORE bullish the SPX.X, an SPX bull really needs the STRENGTH in the energy arena to continue.

RUT.X traders also know that FINANCIALS are the most heavily weighted group in the small caps.

NDX.X traders know there isn't a BANK in the bunch. But understands the implications if the S&P 500 Index starts to decline further. It would likely begin to be a DRAG on the NDX/QQQQ.

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