Let’s have a look at the financials, as I discussed earlier this week.
Let’s take a quick look at the S&P 500 first, though, for a little bit of context. Of course, Thursday, we had a rally that took us past a resistance point that dates back to September 2012. As such, this pulled the whole market higher, including the financials. So, let’s look at the Financial Select SPDR (NYSE:XLF).
[The XLF’s top 10 holdings are Wells Fargo (NYSE:WFC), JPMorgan Chase (NYSE:JPM),Bank of America (NSYE:BAC), Citigroup (NYSE:C), U.S. Bancorp (NYSE:USB), Goldman Sachs (NYSE:GS), American Express (NYSE:AXP), American International Group(NYSE:AIG), Simon Property Group (NYSE:SPG) and Berkshire Hathaway.]
As I discussed earlier this week, the XLF really has a solid point of resistance here until proven otherwise. Very simply put, the resistance point lies somewhere around $17.20. From a momentum point of view, almost everything out there in the U.S. equity market is overbought.
The issue with coming out of the gate as strongly as we did in 2013 so far is that, from a momentum point of view, you have institutional investors and others who are playing momentum that really have to allocate capital. So, an oscillator such as the RSI or the Stochastics Indicator, as I show you in the video, are not really going to give us a whole lot of very informative points because overbought levels can last for a long time, especially in this type of environment where everything is just inflating higher.
So, what we have to look for really is the point of resistance and maybe some candlestick signals and things like that, which is exactly why I’m pointing out this resistance point here on the XLF’s chart near $17.20. That’s important to keep in mind.
But I discussed on Monday, as well, that we wouldn’t want to chase any break above this level, and we need to wait for consolidation either below $17.20 or just above $17.20. Essentially, that’s where we remain. We remain in a consolidation phase. It’s a “wait and see” mode on the XLF.
I’ll start with Goldman Sachs, which had a decent rally since its earnings early this week, but it, too, if you go back far enough, has reached a pretty important resistance point. It’s somewhere near $140. We have to be little bit more lenient here with rounding up and rounding down, but very simply put Goldman Sachs’ resistance, if we look back to the highs of 2011 and measure it down to the lows of 2011, GS has now come to a point of resistance which equates about 61.8% Fibonacci retracement level, which is an important Fibonacci number to look for.
Morgan Stanley has reached, more or less, its high of 2012. It, too, corresponds with an interesting Fibonacci retracement level, which happens to be 50% in this case.
And, last but not least, JPMorgan, which has had tremendous rally off the June lows from 2012 has now matched its 2012 highs and is actually coming up to multi-year highs if we look back far enough.
To make a long story short, I think financials are overbought here. We need to wait for consolidation to wait for a better point of entry.
I hope this helps.