Looking at Banks
The Market
It was another day of churning in the market. Breadth was good, volume was not. This seems to be where we’re at now.
Tomorrow we kick off earnings season with some of the banks. So, let’s talk about them.
When SPDR S&P Regional Banking ETF (KRE) -- an exchange traded fund to be long on regional banks -- was at that line a few weeks ago, I thought it was a buy. When it reached resistance a week ago, I thought it was time to take something off the table. But let’s step back and look at the chart on a more intermediate-term basis.
If it can scoot over this blue line, then I think $56 is where it stops in the near term. But getting over that line changes the pattern from “downtrend since February” to “improved”. The real question is how much the banks are owned and usually it’s easy to tell, but because they have been awful for nearly two months. They have become more like the forgotten group. Therefore I will be much more interested if KRE can cross that blue downtrend line. I think it will.
As for today’s action, the best thing that happened was the put/call ratio finally moved, and it moved up to 99%. This is the highest reading since March 27 when it was 103%. The more bearish sentiment is when we get oversold, and the better it is for the market.
Aside from that, the market seems to be working off the overbought reading by churning. We have essentially been at the same price in the major indexes for six trading days now. That’s a long time.
The most interesting index chart I have right now is for the Dow Jones Industrial Average. We’ll use the SPDR Dow Jones Industrial Average ETF (DIA), another exchange traded fund, to explore it. First you can see that it is trading not only where it was two weeks ago, but two months ago: It is the same place it was in late February.
Just below here, at $260, there is a gap to be filled, and there is support from this trend line. If it gets down there, I’d expect a rally. It has been down three of the last four trading days, so it’s the most oversold. I bet it rallies next week.
New Ideas
Square (SQ) used to be a hot stock, but now it is the same price it was in late January. The risk/reward is pretty good now, because if it trades under $72, we know we’re wrong. If it can get to $80, it’s going to be a much better looking chart, isn’t it?
Tesla (TSLA:Nasdaq) has seen the chatter quiet down. Oh sure, every once in a while something comes up and folks fuss, but they fuss a lot less than they used to. The stock has been in a trading range for two years now but it has been in a downtrend since December. I get asked about the chart often and I usually say, trading range. This time I am going to point out that if it stays under $290, the chances of breaking that lower level support go up as time goes on because the lower highs begin to weigh on the stock.
Today’s Indicator
The 10-day moving average of the put/call ratio is simply in bearish territory. I suppose it can stay down there as it has for quite some time, but at some point it will matter that it has been here too long.
Q&A/Reader’s Feedback
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Activision Blizzard (ATVI:Nasdaq) looks like it’s stuck to me. If it could plunge back to that downtrend line I might warm up to it. Even if it rallies from here and gets through $48, I think the best it does is fill that gap at $50 and then pull back again. At $47, it’s trapped. It needs to move one way or the other to get more interesting. So you know that means it will gap up or down on earnings just to annoy us.
There’s improvement in the chart for Ford (F) . I like it. If the market were oversold, I’d be much more positive, because if it can get over that $9.50-$9.75 range, it completes a 9-month base. A gentle pullback toward $9 would be good.
A month ago, I was not a fan of Johnson and Johnson (JNJ) because of all that resistance overhead at $140. I don’t love the chart here, but if it can hold $134, it gets much more interesting. If you want to bottom fish in it, the stop is quite close.
