Market Likely to Hinge on the Financials

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Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

Courtesy of the short sellers, the rally that started on Oct. 4 continued another day yesterday as they got squeezed a little more and were forced to close their positions. The seven-day rally tally on a daily closing basis now comes to 10% on the S&P 500, nearly 16% for the Russell 2000, and almost 12% for the Nasdaq 100. 

The S&P 500 closed above the 1,200 level but did find resistance at 1,220 and sold off for the last 90 minutes of the trading session. Near term, the oscillators such as the stochastics are overbought, which doesn’t mean the rally can’t continue, but it does make it a little more difficult to continue at this pace.

SPX Daily Chart

Yesterday, we took a look at possible retracement/support levels on the Russell 2000, so let’s see what they look like on the S&P 500.

The hourly chart of the index flags the 1,165, 1,150 and 1,140 as possible zones of support. We will have to evaluate this with volume, time, oscillators, candlesticks and more as we go along, but for now these are areas of support to watch.   

SPX Hourly Chart

Yesterday, I also pointed out the broken intermediate-term chart of the 10-year U.S. Treasury note, which I take to be a bullish development for equities, at least for a few weeks. 

In the very near-term, however, it seems that the 10-year bonds may have formed a little double-bottom and look to rally back up to near the 50-day simple moving average (yellow line). This is merely a short-term development I am looking at, but it does confirm my thesis that in the immediate term stocks may be a little overbought.

Treasurys Chart

The KBW Bank Index (BKX) yesterday broke above its 50-day simple moving average (blue line) and a resistance line, but from a momentum perspective is near-term overbought. 

BKX Chart

Another thing to think about: JPMorgan Chase (NYSE:JPM) rallied 18% off last week’s lows and right in front of this morning’s earnings report. This doesn’t mean a “sell-the-news” reaction is a sure thing, but it certainly increases the probability that anything other than amazing earnings and outlook will lead to some profit-taking (at the very least) in JPM, BKX and the overall market. Financials have led this rally, so a sell-off in the sector would cause the overall market to come off a little as well.


Article printed from InvestorPlace Media, https://investorplace.com/2011/10/market-likely-to-hinge-on-the-financials-today/.

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