Home > Short-Term Trader > Weakness In Financials Could Spell Trouble In The Short-Term

Weakness In Financials Could Spell Trouble In The Short-Term

by
Paul

Last
Thursday, I outlined a triangle
pattern
in the SPX which broke out to the upside heading into the
weekend. This is an excerpt from Thursday's posting – “In
accordance with Elliot Wave theory, the high level nature of this
formation has created a '4th wave triangle'. This means that should
we break out we will be entering the final thrust of this up move
before correcting.”

While
the S&P was putting in a triangle so was the financial group
(XLF), which accounts for nearly 17% of the S&P 500. However,
when the broad market broke higher this already lagging sector
continued to stay behind. Today, the underside trend-line of the
triangle was broken putting not only financial names at risk but the
whole market.


                                                                    FINANCIALS (XLF) – 30 min. chart


XLF triangle

Both
the S&P 500 and NASDAQ have run up into or near very stiff
resistance levels. 1225'ish and 2030'ish respectively. Many sentiment
guides
have become excessively bullish as well.

                                      S&P 500                                                                        NASDAQ

  
Spx RESISTANCE                           
Compx RESISTANCE

Case for cautiousness:

     1. 
Resistance levels in major indices

  1. Weak price action in the financial sector

  2. Overly
    bullish sentiment levels

  3. Headline
    risk – most likely news events related to the bout between Govt. and Wall St. or the European debt crisis)

In
the coming days, it will be important to pay attention to the degree
of further weakness in the financials, should it occur, and how much
it will affect the broader market. The FOMC meeting on Wednesday could
shake things up as well.


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Categories: Short-Term Trader
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