Looks like the bulls will be frying on a wooden stick via the bears bond-fire as of early morning Tuesday, June, 29, 2010, especially considering the bloody massacre that took place in our World Markets: China and Europe. Fears on the World Bank’s statement that economic growth in China would slow caused panic worldwide, and should continue to send all World Markets tumbling down for the short-term as financial institutions look for a scapegoat during this fast approaching Third Depression.
Stocks impacted by these latest developments: Direxion Financial Bear 3x (NYSE:FAZ), Direxion Financial Bull 3x (NYSE:FAS), Bank of America (NYSE:BAC), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), PowerShares QQQ (NASDAQ:QQQQ), JPMorgan Chase (NYSE:JPM), American International (NYSE:AIG), and Wells Fargo (NYSE:WFC)
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The S&P 500 Futures also dropped to 1057, signalling key resistance of 1060 being broken, with 1040 to be tested next, followed by a steady decline to 960. We fully expect these events to move the 3x Direxion Bear Financial ETF (NYSE:FAZ) past the crucial $16 resistance level, thus paving the way for $18 to be tested. Currently it is sitting in a monthly Cup and Handle pattern, with $16 being the top of the channel prior to the breakout. The S&P 500′s 1060 support acted as a crucial defence shield from the worsening economic conditions since the start of the 2010 year. Look for banks to continue to move lower based on this evaluation.
Please read our previous article on the S&P 500′s future here: S&P 500 Will Continue To Crash, While Direxion Bear 3x ETF Continues To Surge
Cup and Handle pattern perhaps spells some of the worst fears for financial bulls on Wall Street, as it is foreseen to be a very strong and correct indicator that hardly ever fails its course.
A pattern on bar charts resembling a cup with a handle. The cup is in the shape of a “U” and the handle has a slight downward drift. The right-hand side of the pattern has low trading volume. It can be as short as seven weeks and as long as 65 weeks.
As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for four days to four weeks… then it takes off. Below is an example of a cup and handle chart pattern:
There really isn’t much to be excited about if you’re a bull on the financial district. Economic data continues to disappoint as per the Fed’s reports, despite their constant attempts at using the national media to their advantage by skewing words to their favour. So from a fundamental point of view, it is easy to notice the Bear Market that has officially been declared by many expert sources, however, many are unaware of the Technical aspect that further reiterates the current situation.
With the Cup and Handle pattern being confirmed over the course of March to June 2010, the breakout past the 200-Days Moving Average of $17.34 is inching closer, spelling disaster for the U.S. financial market. With oscillators such as the Relative Strength Index, Full Stochastics and MACD divergence all confirming an uptrend in the Direxion 3x Financial Bear ETF (NYSE:FAZ), this popular breakout pattern should continue to bring in gains for patient investors.
Call Options Rising Dramatically
FAZ options saw interesting call activity today. A total of 3,908 put and 18,615 call contracts were traded raising a low Put/Call volume alert. Today’s traded Put/Call ratio is 0.21. There were 4.76 calls traded for each put contract.
Put/Call ratio can be regarded as a predictor of investment sentiment, indicating what experienced investors are doing in preparation for a move of an underlying equity. A high Put/Call ratio suggests that the investor sentiment is bearish and that investors are expecting the underlying stock price to decrease. Conversely, a low Put/Call ratio implies that the investor sentiment is bullish and that investors are expecting the underlying stock price to increase. Thus, unusual volume provides reliable clues that the stock is expected to make a move.
Disclosure: Long FAZ
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The charts and comments are only the author’s view of market activity and aren’t recommendations to buy or sell any security. Market sectors and related stocks are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations aren’t predictive of any future market action rather they only demonstrate the author’s opinion as to a range of possibilities going forward.
Disclosure: Long Faz, No Positions in other stocks / ETFs mentioned