Looking Ahead: Banks & Financials Potential Bear Setup

This update will assume anyone interested in the trade also believes that long-term interest rates are going to decline near-term, despite overwhelming popular opinion to the contrary.  I am one of those believers, but not to the degree where I’d stake my life or my portfolio on it.  Much like my long position in Treasury bond fund TLT, this idea is in line with a contrary setup as Commodities, Resources/Materials, Small Caps (which I shorted), Transports and now even Junk bonds weaken.  Some of those items have been part of the reflation-focused post-election trades going on.

Take a look at former NFTRH+ long selection GS, for instance.  The Vampire Squid became hysterically overbought and has consolidated back to the SMA 50.  Now, this could be a healthy work-off of the overbought condition but again, if rates do decline this and the Bank ETFs (KBE for instance) would be left vulnerable.  The daily chart shows a recent new high but also pronounced negative MACD and RSI divergences to go with it.  I would say that a 2nd drop below the SMA 50 would put GS on warning, technically.


The Bank ETF looks a little more orderly, but has the same negative divergences.  It touched the SMA 50 today and is just ticking below 50 on RSI.


Back to GS, here is the weekly view.  MACD is crossing down after RSI became very overbought.  If – and again I stress this is probably closely tied to a contrarian interest rate view – the stock corrects (as indicated by a loss of the daily SMA 50 above) 210 looks like a reasonable target.

gs weekly chart

Since we are looking ahead, I’ll keep this informal.  But pending interest rate dynamics I’d use a break below the SMA 50 as a bearish signal and use that same marker as a stop loss if it fails to hold the stock down.  Personally, if I can get a better read on the bond/interest rate play I’d probably try shorting one of these items for fundamental reasons.  But the above update adds some technical aspects as well.

A reminder that chart based NFTRH+ updates are technical trade setup ideas, which may not be revisited as the buy, sell, stop parameters are already noted. They are meant as a starting point for further research if interested. I will not personally buy every item highlighted and will sometimes sell – without prior notice (because this takes time and resource away from NFTRH’s main functions) – any item that I do buy, below target, which is something I often do as a trader. Also please be aware that I am not a fundamental stock analyst. Due diligence is your responsibility.