Watching Financials This Week

I believe that this week will be a pivotal week for the banks. In the recent past we watched the sector rise more than 10% giving investors hope that the near term foreclosure crisis is largely behind us. Shorts were squeezed and put option open interest dropped. Technicians saw happy days in store for financials but then things turned around.

Much of that progress has been lost leaving investors wondering what happened to the recovery. Even the chartists are scratching their head wondering why the banks, poised for recovery, retreated. This week will be pivotal.  With the bears clearly in control, the test is on. If they break below their 20 day moving average this week, a full retreat down to their recent lows may be in the cards. If they find support at this key technical level, a retracement of the recent highs will look probable.

If you’re wondering what to do with the banks, right now, nothing. Give it a few days to see if a clear signal emerges. If there is any bright side to the recent downward move, it has happened under low volume so it hasn’t been convincing.

All we can do now is wait.

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