Well all of the banks rallied when the news came out of a successful stress test. But what is more important is what is the larger picture of these banks as a whole. When going through all of the banks hourly charts, 16 of 19 are currently in an uptrend. The three that are not are, FITB, STI and COF. Only three, this tells you that financials have been strong for quite some time and that we may be nearing a point of a reversal. News does not move the markets it only triggers certain rallies and reversals. I am seeing red flags on this move, and in the banks, let me explain by showing you the financial sector as a whole.
XLF is an ETF for the financial sector and is showing some extreme extensions on the daily chart. When you have five waves up, it means you can start to look for topping signs and a strong reversal because that rally is most likely over. Going back to the beginning of October I can see a clean five wave structure laid out. The price has hit the typical fib targets that you would want to see in a standard impulsive wave, and is now approaching the 200.0 fib, which is mostly likely the end of the 5th wave. That 200.0 fib lies just up above at $18.74. All of this is bearish for the banks as a whole. Sure, there may be a couple bank charts that holdup, but I would be bearish on the sectors as a whole right now. It seems as though the ‘stress test’ is lining up to just be a false breakout, only to find price reversing quite significantly.
Author: Peter Nitso
Twitter: @PeterNitso