As you know, the big short covering rally in equities was led primarily by energy and materials stocks. We observed this opportunity a few weeks back when the bullish percents in the $BPENER and $BPMATE both had readings under 5. This hasn't happened in the energy sector since 2008, and has occurred only twice in the materials sector since 2008.
The next leg in equities, if we are to break up and away from this range, will be led by the banks. Tonight I wanted to share the following charts, which are taking on a much more bullish look. They are of the Bank Index; $BKX.
Here's a quick look at the base on the daily chart:
Here's another look on the 30 minute, which shows prices coiled up, ready to at least test the upper end of this range once more.
If the banks do breakout, the reason I think they'll lead the market higher, is based on how much they could rally, and their next upside reference points. From a purely technical standpoint, take a look at the price by volume chart, which I've taken back 5 years.
As you can see, there is a pretty thin volume pocket overhead. Several regional banks have already started knifing through these pockets, but there are several more just waiting for the signal.
In summary, into strength, I'd look for quick swings in the banks.
Disclaimer: Long FAS Calls.
Posted from Trading Addicts....
As we head into the heat of earnings season, the bears took control of equities today, starting in overnight trade, where futures were sold almost to the tick of the top of the multi month range in stocks. From the open, it was a grinding, trend day lower, where stocks managed to close on their lows.
We had mixed earnings reports after hours, and futures are trading slightly down on those mixed reviews. Asian markets are a little heavy this evening as well, which should lead to a heavier open.
European markets are still weighing on the bulls here, as the promptness of a debt deal might take longer than anticipated. We'll be trading into a headline driven market, so make sure you're not caught leaning to heavy in either direction until the proper headlines, or signals set-up.
Here's the latest chart of the SPX. 1200 seems like the perfect close on the day. Ideally, for the bulls to remain in charge, that 50 day moving average ought to act as support. Use it as a reference point into further weakness.
We saw significant call option activity in the following names today...
WFT Oct 15 Calls (11,794)
SIRI Oct 1.5 Calls, Nov 2 Calls (6,133 / 2,049)
We saw significant put option activity in the following names today...
PHM Nov 4 Puts (25,244)
KBH Nov 6 Puts (16,558)
We discussed shorts in precious metals today, via GLL and ZSL. The locations are decent, and risk is easy to manage. If these vehicles haven't moved too far at the open, we might pull the trigger on a position here.
Oil prices, as discussed broke out of a bearish trend last week, and we'll be watching to see if that dip gets bought. Using USO as a measure, look for a possible bounce at $33.
As for Copper, it is trading at a critical level. Any continued weakness should be a concern for equity bulls here. We've been following a longer dated price by volume chart, and the last 8 trading days have managed to cling to the 'point of control' near $3.35. The move away from this level should lead equities by a few days, so keep a close watch.
The EEM was off by more than 3% today. Germany, Italy, Turkey, Sweeden, Brazil and Russia were particularly weak on the day, off by more than 3.5% respectively. The Euro Zone is still the catalyst to redirect these nasty trends, but as you can see by price action today, traders are not yet convinced.
The McClellan, which finished the week north of 80 last week, closed at 37 today.
Of the bullish percent indicators, the $BPGDM, and $BPHEAL are the lowest current readings.
The highest are $BPUTIL and $BPINDY.
The banks are an important catalyst here. Given the current backdrop, and the negativity directed towards Wall Street, the main focus should be on financials into earnings. We discussed the current technical set-up in the $BXK, and with a few upbeat earnings reports, this index might be able to break free from its multi-month trading range.
Money moved swiftly out of Energy and Materials this morning, as the groups staged epic moves last week. Keep an eye on the reversal patterns forming on the charts. There might be a good dip buy setting up over the next few trading days. Despite hitting these groups hard over the last few weeks, we feel there might be a little opportunity left in some of these stocks soon.
We remain in a range, plain and simple. The upper end of this range was defended, and the overbought signal in the $NYMO acted as a great warning sign.
Stay hedged at these levels, but over the next few sessions, we'll be trying to locate the next dip-buying opportunity.