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The chart below reflects how strong the banks were from 2000 to 2007, gaining 58%, while the S&P 500 was flat during that time period….in hindsight the S&P 500 was creating a large “Double Top!”
So Goes the Banks, So Goes the Broad markets? Some of the time that is really true. For sure when Banks/Financials fell in 2007/2008, they contributed to the broad markets weakness!
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The top chart looks back on a few key technical aspects of Banks back in 2006/07, which were….Banks were reaching lofty overbought levels, hitting a Fibonacci 161% extension level and created a bearish rising wedge pattern at (1). Once support broke, banks moved from relative strength to relative weakness!
Currently the Power of the Pattern reflects Banks/Financials reflects the following in XLF… it is reaching lofty overbought momentum levels, is hitting a Fibonacci 161% extension level and has created a potential bearish rising wedge at (2).
From a fundamental perspective, Banks seem to be in much better shape today than in 2006/2007. From a Power of the Pattern perspective, “Banks Bear watching” due to this setup at hand and could well impact the S&P500 IF support would be taken out, (which remains in place at this time) !
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