We hit the financials yesterday as this market-lagging group typically has broader implications for the market. The continued weakness within the financial sector demands further investigation at the stock level to determine which stocks might drag the sector lower as they break through technical lines in the sand.
Today’s three big stock charts review the charts of Bank of New York Mellon Corp (NYSE:BK), JPMorgan Chase & Co. (NYSE:JPM) and U.S. Bancorp (NYSE:USB) as three of the top weighted stocks within the Financial Select Sector SPDR Fund (NYSEARCA:XLF) that are currently dragging the sector lower and offering bearish traders an opportunity to profit from their next move lower.
Bank of New York Mellon Corp (BK)
Shares of Bank of New York Mellon have been playing with fire as the stock has been rolling over into a bearish pattern that indicates a large bearish move is on the horizon. BK stock accounts for about 2% of the XLF weighting, so the decline will add to the financial exchange-traded fund’s weakness.
- Bank of New York Mellon stock spent some time trying to consolidate at $51.50, but a new pattern of lower highs and lower lows has now cracked through this chart support. The next round of chart support comes at $50 from the round number aspect of this price.
- Last week’s break of the 50-day moving average has accelerated volume and selling pressure, targeting a quick move to $50. BK stock is reaching some oversold readings from its RSI, so a Dead Cat Bounce may be in the short-term cards.
- Bank of New York Mellon stock broke its lower Bollinger Band this morning. This means that volatility should increase, adding even more downside pressure. Expect this to result in an immediate test of $50.
JPMorgan Chase & Co. (JPM)
JPMorgan stock accounts for a whopping 10% of the XLF’s weighting, so this is a company to keep our eyes on in terms of the directional pressure on the rest of the financials.
This week’s trading is identifying a lower price target for the shares as technical levels give way and volatility is on the rise.
- Like BK, JPM stock is breaking through its lower Bollinger Band. This is the second break of this volatility threshold in less than a week. When this happens, the stock in question normally sees a sharp rise in selling and volume.
- JPMorgan stock’s 50-day moving average is in the process of rolling over. This puts the stock in a neutral-bearish category that will be confirmed bearish within the next week.
- JPM’s momentum according to the MACD and Aroon indicators is decidedly negative. Expect a break below $89, which has been chart support, to drive the prices lower to a target of $87 in short order.
U.S. Bancorp (USB)
One of the larger regional banks, USB accounts for about 3% of XLF’s weighting. USB stock has been trading within a wide range for the last five months as the rest of its peer companies have been able to break into a short-term rally over the last month.
Now shares of U.S. Bancorp are breaking the lower end of their range and setting course for lower price targets.
- USB stock started making its stair-step lower move with lower highs and lower lows in mid-August. U.S. Bancorp shares broke through the critical $51-level, which has held the stock from deeper declines since May.
- With USB stock trading below $51, the next round of potential price support comes in at $49.50, but the momentum trading is setting up to blow through that support as well.
- U.S. Bancorp is one of the few stocks in the Financial Select Sector SPDR that are now trading below their respective 10-month moving averages. This puts USB stock in a firm intermediate-term bearish outlook with a price target of $46.50.