Falling real estate values and rising foreclosures have put pressure on the financial sector in the last four months. Without this sector moving higher we cannot expect the broad market to make any significant moves higher either.

If you take a look at the SPDR Financial Sector ETF (NYSE: XLF), one of the best ETFs, you will notice that it’s now trading near a major support level (fair value) where most shares changed hands in the past. With this sector sliding 13% from the highs in February and the fact that it’s making a parabolic drop into a support zone I can’t help but think a bounce is very likely to form soon.

With the financial sector nearing major support and the S&P 500 staring to show signs of a bottom forming I admit my heart is starting to pound in excitement for an entry point. I am hoping that we soon see another sharp drop in the stocks which should spike up the CBOE Volatility Index (CBOE: VIX) to 21 or higher. If we can see this take place, then I will be taking a long position to catch a two to 15 day bounce in the broad market.

Silver 2 Hour Chart

Silver took a big hair cut last month falling from $50 down to $33 per ounce. Ever since then it has been trying to form a base which will act as the next launch pad for higher prices. So far it is looking good but there is a key resistance level to breakthrough before fireworks. Keep your eye on the silver bullet.

Gold 2 Hour Chart
Gold is back trading up near its high but is starting to struggle with resistance (sellers). We could easily see gold pullback to the $1520 area before taking another run at resistance.

Conclusion
In short, I feel investors are getting very nervous because of the six week sell off in stocks. There have been some technical support levels broken on the S&P 500 and other indexes and it is these broken levels which have investors running for the door. The thing is this type of selling happens every year and generally two to three times. During a bull market I like to see fear in the eyes of investors. Until we are proven wrong about buying extreme oversold dips, they continue to be my focus.

Also if the financial sector can find a bottom and start to rally, then we will see higher stock prices across the board in the coming weeks. I am currently neutral on metals, oil and the dollar. But I am getting bullish on financials and the S&P 500 as they move lower.

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