Market Analysis

Financials: Chart Trouble!

What if you have a record earnings party and nobody shows up? That’s precisely the dilemma seemingly faced by the financial sector. Despite many bank stocks reporting record earnings so far (due to tax cuts) their stocks are nowhere near record highs. Worse, many of these stocks show larger potential topping patterns that require one solution, and one solution only in order to not be bearish and that is: Bank stocks need new highs. But if record earnings are not enough to push them toward new highs what will?

On the earnings front this all looks fantastic:

Peak earnings? One has to wonder.

Let’s look at some basic charts.

Here’s $BKX the financial index: Nowhere near highs and worse, sporting a big fat bear flag:

$GS reported record earnings, it remains below the 50MA for now also suggesting a bear flag pattern.

Note both charts suggest topping patterns a theme now permeating many of these stocks.




Ghastly charts. All of them. Ok so $WFC has problems.

What about $JPM also producing record earnings?

None of these patterns are bullish in their current forms and new highs are needed to repair these charts.

Should these patterns break down larger downside risk targets could be triggered as highlighted here in the $XLF chart below with larger support between the .382 fib, the 2015 ascending trend line and the .50 fib.

Banks supposedly got everything they wanted so far in 2018: Higher rates, higher trading volume due to market volatility, massive tax cuts benefitting them like never before and yet where are the new highs?

But here’s perhaps a more troubling thought: What happens if financials do make new highs? Technical speaking new highs would almost certain come on a massive negative divergence due to the vast overbought rally in January possibly replaying a familiar script seen in 2007:

And if you read The Big Market Tops, you already know what that means.

Either way you cut it or slice it there is technical chart trouble in financial land.

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12 replies »

  1. Sven, GREAT CHARTS! As always. Thanks for sharing your insight and those charts, even if I don’t know much about charting.


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