Update on Financials: Dec 7, 2012

The last time I devoted an entire post to financials [June 5: So Crazy, it Just Might Work] XLF was down nearly 19% from its March highs.  I held my breath and made some ridiculously bullish predictions.

But, all good things must come to an end, and I think the tide is turning for financials.  Don’t get me wrong…I still think they’re dead meat in the longer term.  I just think we’re looking at a sizable bounce here and now if — and let me be clear, it’s a very important IF — the rumors are true and Kumbaya Banking and Quantitative Whatever are back.

If not, this entire exercise isn’t worth the bytes it’s written with.  The financials, along with just about everything else Bloomberg quotes, will roll over and die.  OK, with that huge caveat out of the way — and before you laugh me out of cyberspace — here are my targets:

JPM:  today’s close = 31.99, price target = 38.69 (+21%)
C:       today’s close = 25.75; price target = 34.79 (+35%)
BAC:    today’s close = 7.10; price target = 11.34 (+60%)

Turns out that was the low for both JPM and C.  JPM reached our target on Sep 6 and tagged on an additional 5 points by October 17.  Citi reached its target on Sep 14 (same day SPX peaked) promptly dropped 10%, then rallied another 3.5 points to form a nifty little double-top on October 18.

BAC was my one disappointment.  It had achieved a nice 38% return when it peaked at 9.79 on Sep 14, but had fallen short of my price target — a Fibonacci 61.8% retrace of its 68% 2011 plunge.  Apparently I had been too optimistic.  Or, so I thought…

Don’t look now, but in the past couple of days BAC has shaken off its laggard status and is once again spiking higher — trading within 66 cents of my June forecast.  As has been widely reported, call option buying is going through the roof.

Sadly for those speculators, though, it’s going to take lots of unicorns farting rainbows for those calls to pay off very big.  Why?

Reason #1:  Yep.  Two Crab Patterns pointing to the same conclusion — a reversal near current prices.

Reason #2:  Uh-huh.  Rising wedge, plain as the note on your place.

Reason #3:    Bad channel karma everywhere.  Maybe those call buyers don’t look at charts much?  Yikes!

Reason #4:  How about a Fib .382 reversal?  It’s not usually the end of the world, but it is a Fib. And, it’s surrounded by a bunch of little channels that are about as cute as a pack of Dilophosaurus.

I’m not going go all negative and start talking about the massive fundamental problems BAC faces — as do most other banks.  But if BAC hasn’t done its thing by the time the market does its mama bear crash here over the next few weeks, it’ll be a couple of months before it gets another shot.

If it’s lucky, the sell-off will only be to 9.12.  But, it the white channel mid-line doesn’t hold, you could through another point or so on the fire.

What does this mean for the rest of the financials?  Think in terms of a downdraft on Monday.   XLF needs 8 cents to reach its .786 (or .21 for the .886), which ought to get the party started to the downside.

JPM needs .47-.61 to reach a prime target for reversal — either 43 or 43.14.

And, C has about 44 cents of life left in it;  38.19 oughta do it.


When it comes to significant moves, financials often lead the broader markets.  Fortunately for our forecast, they are only one good pop away from being ready for a slide.  Having them on board in the next session or two should get us where we want.


Update on Financials: Dec 7, 2012 — 1 Comment