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It wasn't a terrible week last week in terms of losses on our major indices, but it definitely didn't "feel" good. For the week, the Russell 2000 fell only 0.22%. That small cap index and the NASDAQ, which lost 0.76%, were the relative leaders. The biggest losers were the Dow Jones and S&P 500 as they lost 1.67% and 1.15%. There were a few reasons for the larger losses on the more defensive Dow Jones and S&P 500, but probably none bigger than financials having a poor week. The Bank index ($BKX) tumbled intraweek, falling by 1.65% for the week, but it did manage to hang onto price support in the 45.80 area. The $BKX hit a low of 45.81 on Friday before rebounding and hanging onto this critical area. JP Morgan (JPM) rocked the financial sector on Friday after it announced Thursday evening that a trading strategy designed to minimize risk actually backfired and caused a HUGE $2 billion trading loss. These types of losses helped to fuel the financial crisis in 2008 and JPM was seen as one of the more conservative financial institutions. So traders were very nervous on Friday, not sure how badly the market would react to such news. Take a look at different timeframes on the $BKX to understand the current technical state of this very influential industry group: 
This one year chart shows mixed signals. The MACD has crossed beneath the centerline, indicative of accelerating momentum to the downside, a negative. Another negative is the "death cross", which represents the 20 day EMA crossing beneath the 50 day SMA -- a sign of crossing from a bullish trend to a bearish one. The good news, however, is how banks reacted after touching price support. The combination of price and volume is the most important technical signal in the market and so far the bulls should be happy that the 45.80 support level was defended successfully on Friday, especially given the JPM news. The long-term weekly chart is also positive, at least for now because of a key moving average support that was successfully tested. Check this out: 
Given the strength in the MACD on this longer-term chart, we'd expect to see the 20 week EMA hold as support. Last week, it did just that. In addition to price support at 45.80, there's also the 20 week EMA at 45.89. That combination will be important to monitor in the days ahead because if the market loses leadership from such an influential group, it could definitely lead to more selling and we'll want to become much more cautious ahead of such selling. Semiconductors ($SOX) firmed up late in the week, but that came after a fairly significant breakdown. So the bulls have repair work to do in order to encourage those sitting on the sidelines to commit more capital to this closely-watched technology sub-sector. Check out the breakdown and subsequent test of resistance from underneath: 
The blue circles above show clearly the change in momentum in the $SOX. After seeing the MACD cross below the centerline and increase momentum to the downside, subsequent tests of the falling 20 day EMA provide us clues as to the market's intent. The red circle shows that the $SOX could not clear its 20 day EMA resistance on the next attempt before losing price support at 396 and hitting new lows. Last week's late rally, while impressive, could not close back above the 396 price resistance. If the market wants to regain its momentum to the upside, banks and semiconductors would be a great place to start. |
