Bank Withdrawals
Not only was the market in a mood to
slap down bases and breakouts on Friday. It was in a mood to slap down breakouts
and bases in the financials.Â
Strength
in the financial sector is a sign of a healthy or improving general market.
Weakness implies the contrary. In the present context, financials have been one
of the few areas of intermediate-term strength. If even isolated leading groups
break down, what is the intermediate-term momentum trader left with for trading
long? The next week should be educational as we see whether the financial groups
hold up or break down.
Bank of
America
(
BAC |
Quote |
Chart |
News |
PowerRating) may have served as the catalyst of Friday’s selling, but not
the cause. Something more profound is at work here. When markets are bullish,
they shrug off the kind of rumors that affected B of A. And in the present
context, financials should stand to benefit from the Fed’s rate-easing course.
So what’s happening?
Rates are
half of the fundamental coin. The other half is earnings. The recent action in
financials is telling us that the market is worried that the Federal Reserve
waited too long despite the drama over this week’s half-point cut in fed funds
rate. Â
Speculation
hit Wall Street that one of California’s largest utilities, facing insolvency,
had drawn down a line of credit at Bank of America and that the bank had large
trading losses. The bank issued a statement denying any significant losses and
express confidence in its credit quality for 2001. The stock fell 3 3/4 to 47
3/5 on 15.3 million shares, double average daily volume.
You
didn’t need exposure to the utilities to feel the effects selling in the sector.
Shares in Providian Financial
(
PVN |
Quote |
Chart |
News |
PowerRating), the sixth largest U.S. credit card
issuer, broke out Wednesday, ran into distribution on Thursday and dropped back
into their base.
XL Capital
(
XLF |
Quote |
Chart |
News |
PowerRating), an insurance and
financial services company, has broken down badly. First, it broke out from a
nice, ascending triangle, then that move reversed. The stock tried
to rally once more and cracked.
FleetBoston Financial
(
FBF |
Quote |
Chart |
News |
PowerRating), the
eighth largest bank holding company in the U.S. by assets, ran into heads,
falling 1 9/16 to 40 15/16 on twice its usual trade. The stock did manage,
though, to end the day without filling the gap on the prior session gap-up
advance.
Lehman Brothers
(
LEH |
Quote |
Chart |
News |
PowerRating) held up well following its cup-with-handle breakout
two days ago. The stock broke out of a cup-with-handle base on Wednesday, ran
into some selling Thursday but still closed up, then bounced off its intraday
low and closed off just slightly to close in the upper area of its daily range
with a good contraction in volume.
The top field of all charts in this
commentary uses a logarithmic price scale and displays a 50-day price average in
red. In the second field, a
blue relative strength line represents the displayed security’s price
performance relative to the S&P 500. The third field displays vertical daily
volume bars in black with a 50-day moving average in blue for volume.
All stocks, of course, are risky. In
any new trade, reduce your risk by limiting your position size and setting a
protective price stop where you will sell your new buy or cover your short in
case the market turns against you. For an introduction to combining price stops
with position sizing, see my lesson,
Risky Business. For further treatment of these and related topics,
you’ll find extensive lessons in the Money
Management area of TradingMarkets’ Stocks Education section.