Deutsch Bank was trading much lower pre-market, printing 9.93 earlier in European trading.
The S&P500 has its financial sector components weighted at 15.75%, down from the 2007 highs. The sector was reduced due to the fallout from the financial collapse of Lehman and Bear Sterns in 2007-2008.
As traders, we know sector strength must prevail, if we have a penchant for bullish sentiment, therefore financials are extremely important in market trending through a “Wall of Worry”.
“The financial markets’ periodic tendency to surmount a host of negative factors and keep ascending. Wall of worry is generally used in connection with the stock markets, referring to their resilience when running into a temporary stumbling block, rather than a permanent impediment to a market advance.” – Investopedia
The financial services sector (XLK) is printing lower highs and lower lows at present. A good setup for the fall months, would be a pullback to the 200ma. That would likely affect the S&P500 (SPY). MACD is drifting lower, presently beneath the zero line, which leads us to believe further bearish tendencies will prevail in the banks.
The S&P500 ETF is gyrating tighter inside of this 3 point range, building a triangle, with the lows extending back to February. As we climb the “wall of worry” we have two benchmarks to guage our responses. 1) the trendline must prevail, else we pullback. 2) price must get back above the 9/20ema, as well as the 50ma. Only the 20ema and 50ma are shown. We are below all three.
The good thing for bulls is this. Price has only pulled back to 23.6% Fibonacci, using the Brexit lows as reference. A pullback to 208.62 represents a 5% drawdown from the current highs. Keep that in mind as we open for trading today.
If you’re nervous, you could buy some OTM puts for a safety insurance/hedge and scale back any investments in your retirement accounts until the “all clear” is sounded.
While we do not anticipate a major pullback, there is a much higher chance of 5% or less. I don’t have the statistics in front of me, but 5% is considered normal and constructive.
I am back in the office this morning. Thanks to all of you for your well wished and team work in the room.