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Globally, the financial sectors in general (and the banking sectors in particular) are operating at levels far below the highs we saw in 2007 before the GFC. Yet recent months have seen some strong moves in the US Banks. A quick look at the indexes in Chart 1 shows the stagnation in the Australian market compared with three strong months of upward moves in the US. Chart 1: Financial and Banking Indexes for Australian and US Markets
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Hoping to capitalise on these moves, I have sifted through the charts of the US Banks and found some potentially great setups. The position of the S&P 500 index is a good indicator of things to come and there are several banking stocks that I will be stalking in coming days and weeks. Currently we are wondering if we are seeing a false break of double tops or if the S&P 500 is about to push into higher territory. The answer will more than likely align with the direction that the banks (and certainly the US banks) will take for the remainder of 2012.
I would specifically like to draw your attention to Wells Fargo (NYSE:WFC), which is currently showing a triple top pattern. Chart 2 illustrates how this pattern aligns with 75% of the All-Time-High, which is a strong price pressure point. Chart 2: Wells Fargo with Triple Top Pattern
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A strong move often forms from a triple top so I will be watching for either a run down from the last top or, if the market breaks through, a first higher swing bottom entry above the tops. Either way, I would expect a clear tradeable trend to form and the next few days could well see the start of this. At the time of writing, the market has closed right on 34.25, which was the exact price of the first two tops. If the market pushes through these levels then comes back and sits on them, what was once resistance will be acting as support. Alternatively, if the market moves strongly back under this level, then short trades will be in order to capture the run down from the triple tops.
The swing charts show a very large range into the current price, so a pullback is not out of the question. There are contracting down ranges on the swing chart as it stands but if we have a pullback, you should compare its range with the previous down range to look for an overbalance of price. Chart 3: Swing Chart of Wells Fargo
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There is plenty of time analysis that could be combined with this setup but this simple triple top chart pattern offers exciting potential and I expect a strong move out of these tops on WFC to be confirmed within the next few days.
It’s the Journey
Lauren Jones
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