Banks have the best prospects of a follow through in the short term, as market cycles play out this week. Transports, Energy, and Industrials are nearing cycle peaks. The overall market is pressing higher, in this current bullish cycle that started in late August. NYMO is still cycling through zero (moving average), so breadth confirms the current price action.
Summary
Banks and XLF Show Promise
We are looking for short/intermediate term trades on banks at the present time. The current cycle shows a tradeable low and is still developing, so expect some volatility. That said, a number of big banks are showing institutional interest as blocks and options flow is building.
We bought some Bank of America on Tuesday, reflecting on this perceived bullish options flow and block trades that continued throughout the day. Citigroup also showed a lot of interest.
Courtesy Wall St Jesus
If price action breaks above this upper trend line (60-min chart) we will likely see a quick pop above recent pivots, with a short term target of 24.72. Note major support is just below at 23.80 (VBP). A drop below this zone (23.60) would stop us out of the trade. BAC reports earnings on October 16.
Many other sectors are witnessing bullish flows that have yet to dissipate, so we are anticipating the current up cycle will continue, at least until we see a change of slope in the bottom panel.
Individual sectors are starting to hit extremes in their cycles. Breadth, in particular, has risen to previous extremes fairly rapidly, so we feel it’s prudent to start reducing position size again as we press higher.
Once HiLo percent reaches 90, we will once again be setting up for a 1-2% pullback in the short term. Plan for it.
Happy Trading,
Vinny
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