Bank Patterns Point to Intermediate-term Top
The look of some of the larger Financial stocks are suggesting more downside ahead and a likely intermediate Top for the market.
2-year Head/Shoulder Top pattern. To trigger this would need to break $50. The measured target should be near $35.
2-year Head/Shoulder Top forming. Breaking below $49 would confirm this pattern. The measured move suggests an objective of $40.
2-year Head/Shoulder Top. When Goldman struggles, Financial stocks likely struggle.
Regional Bank ETF looks to be in the process of possibly forming a larger Top pattern. Over the last year KRE has formed a confirmed a Head/Shoulder Top pattern. It should be noted this achieved its objective and is now at prior support.
It is possible this recent correction back to the prior lows could setup a larger Head pattern. A subsequent rally from this oversold condition could create that major lower high and look quite ominous. I will be monitoring this going forward.
The patterns in Bank stocks look to suggest a bigger problem ahead for the market. At the very least they suggest taking caution in our investments, raising more cash is my ongoing objective until this situation resolves itself.
Coming out of 2016 I was very bullish on the Banks. We did great through 2017, but 2018 has been a different animal. They have been frustrating to own and very volatile, especially considering we are "suppose" to be in the ideal environment for these companies to perform strongly.
The price action is not lining up with the common thesis revolving around Interest Rates and the economy. When the reality of the market action and "opinions" are on opposing sides, I go with the market 100% of the time.
XLF is showing Relative rotations away and more into Consumer Staples (XLP). This suggests a cautious posture from large Institutions. Momentum is also showing a trend change after over 2-years of "uptrend" behavior. Failing below the Zero-line shows a shift in trend, at best it marks a period of choppy consolidation for the intermediate-term.