Do You Own Any Stocks In This Sector? It’s Ready To Roll Over

  • August 4, 2003
  • Derrick Hobbs

Financials, Financial,
Financials… Boy is this sector ever the “Buzz”.  So…do they roll
over or do they charge onward and upward? Are there going to be any major blow
ups due to the massive bond market action? “Inquiring minds want to know!”
Here’s my perspective on the banks/financials…

Take a peak at the weekly Bank
Index
(
$BKX.X |
Quote |
Chart |
News |
PowerRating).  A couple of
weeks ago, we completed two bearish patterns (Bearish Gartley from the January
01 high; Bearish Butterfly from the August 02 high) into a large Fibonacci price
resistance zone from 897-930. Now, for approximately 9 weeks we’ve stalled
against this resistance zone. After an initial down thrust, this index reversed
to the upside, getting many spectators excited that bull is still in place
because the financials have averted disaster.

I wouldn’t hypothesize that far just yet. In fact, currently I am bearish on the
sector based on the current resistance and patterns. The risk reward scenario at
these levels are not attractive to me. Right now, I have a target on the BKX
down around 760-800, which is about a 10% downside move from here. 

Today, just looks like we could be moving up to map out the right shoulder of a
Head and Shoulders distribution pattern against this resistance zone. Now, what
makes me change my mind? If the resistance zone above 930 is broken. If BKX
trades above this zone it will break up two bearish patterns and likely create a
momentum move the upside to take out the January 2001 high above 977.


An proxy for this index would be the
Financial SPDRs
(
XLF |
Quote |
Chart |
News |
PowerRating). Below is a weekly
chart. Basically a large resistance zone from 26 to 28 with two patterns
complete into this resistance zone as well.


To summarize: I’m bearish on financials based on patterns
and resistance. That opinion changes if those resistance zones and patterns are
taken out.

Have a great night!


Derrik Hobbs

 


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