Technical Event Alert Coming in Major Financials (FAS, XLF, JPM, BAC, WFC, GS, C)

There is a key technical event that may be close to occurring in some of the major banking and financial stocks.  These have all used the 50-day moving average as a key pivot point since at least July, and of late this moving average has acted as resistance as well.  This may be representative of lower volatility, but if you look at the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and the Financial Select Sector SPDR (NYSE: XLF) this was particularly clear as well.  We looked further into key ETF components such as JPMorgan Chase & Co. (NYSE: JPM), Bank of America Corporation (NYSE: BAC), Wells Fargo & Co. (NYSE: WFC), and Goldman Sachs Group, Inc. (NYSE: GS).  Citigroup Inc. (NYSE: C) looked like it had an entirely different chart pattern because it is in a league of its own.

We do not usually conduct technical analysis on the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) because of its daily resets, yet you can see how it has used the 50-day moving average as a key pivot point from October through November and into December.  At $74.06 its 50-day moving average is $76.30 and the 200-day moving average is $59.71.  So shares are within about 3% of that key moving average, and this used to move 3% in one hour when the volatility was strong.   The Financial Select Sector SPDR (NYSE: XLF) used the 50-day moving average as a key pivot point (and resistance) from the end of October, all through November, and into December.  When you consider the recent knocking of the sector by Meredith Whitney, these moving averages as real issues start to come more front and center.

What is interesting in our review is that while the 50-day moving average is within about 3% to 5% of the current price, the chart set-up requires a faster review because this will come up front and center as soon as next week even if the shares suddenly see little price change.  This is because the trend of the 50-day moving average is generally heading lower while the 200-day moving average is heading higher.  We have shown the stockchart.com chart for the FAS to show the stickiness here on these charts of late.

JPMorgan Chase & Co. (NYSE: JPM) is at $41.98; its 50-day moving average is $43.05, and its 200-day moving average is $37.90  Bank of America Corporation (NYSE: BAC) is at $15.34; its 50-day moving average is $15.86, and its 200-day moving average is $13.54.  Wells Fargo & Co. (NYSE: WFC) is at $26.74; its 50-day moving average is $27.83, and its 200-day moving average is $24.27.

Goldman Sachs Group, Inc. (NYSE: GS) is in a slightly different boat at $165.59.  Its 50-day moving average is 172.74, and its 200-day moving average is $152.71.  It was only early November that the 50-day moving average was tested, back when the stock was tying to go from $175 to $180 when financial shares were higher.  Citigroup, Inc. (NYSE: C) is now in an entirely different boat at $3.38 after its record and disappointing share offering last week.  At $3.38 its 200-day moving average is above the price and is listed as $3.69, while the 50-day moving average is $4.11.

To make matters worse, even the 20-day moving averages are all intertwined and in-play as well, and that is in a period where the daily volatility on these major banks and financial institutions is much lower.  Some of these are in a narrowing triangle or flag pattern as well, which is often used as a prelude to increased volatility in the near future.   And this is happening in the silly season when trading volume starts to dry up over the holidays and when market participation is generally light.   Stay tuned.

JON C. OGG
DECEMBER 22, 2009