Earlier this week came an alert that a technical event was likely to be seen in the major money center banks and major financial institution stocks pertaining to the 50-day moving averages. After taking a closer look, this is now almost certainly going to come to fruition during the week between Christmas and New Years as we close out 2009. We looked at shares of Bank of America Corporation (NYSE: BAC), JPMorgan Chase & Co. (NYSE: JPM), Wells Fargo & Co. (NYSE: WFC), and Goldman Sachs Group, Inc. (NYSE: GS) in this review. Citigroup Inc. (NYSE: C) is in a no-man’s land. Even the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) and the Financial Select Sector SPDR (NYSE: XLF) show this technical alert is coming up as well. We even looked at the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) to see if anything could be seen there.
The 50-day moving average is within about 2% to 5% of the current prices of most of these shares. This has been a key pivot point for some time. The issue that makes the 50-day moving average closer to coming up is that if you go back 50 trading sessions, the stocks were all at their pinnacles in share prices. The 50-day moving averages are descending, while the 200-day moving averages are rising. And the prices from 45 to 50 days ago were all considerably higher than today’s prices. We have provided links to the stockchart.com charts for these where needed. We have also made an attempt to predict what the key moving averages will come down to in the middle of next week.
Bank of America Corporation (NYSE: BAC) is at $15.23; its 50-day moving average is $15.74 and its 200-day moving average is $13.64. Just two days ago that 50-day moving average was $15.86 and the 200-day moving average was $13.54. October 14, 2009 is 50 trading sessions ago, and its closing bell price was $18.58 versus $15.23 today. October 15 was $18.09, and October 16 was $17.25. October 19 was $17.15 and October 20 was $17.00. That means that if prices remain stagnant here then the 50-day moving average is going to be closer to $15.65 on Wednesday and perhaps under $15.60 by the official start of the new year on January 4, 2010. If you look at the chart on BofA, you will see how this has been a critical juncture for BofA. This leaves less than a 3% move next week before a key technical test would come into play.
JPMorgan Chase & Co. (NYSE: JPM) is at $41.77; its 50-day moving average is $42.86, and its 200-day moving average is $38.18. Two days ago that 50-day moving average was $43.05 and the 200-day moving average was $37.90. The stock traded at $47.16 on both October 14 and October 15, meaning that its moving average will be sharply lower as well. By next Wednesday, that means that this 50-day moving average (assuming static prices today) would be about $42.66, only about 2% above the current share price. While JPMorgan is the safest of the big money center banks, its 50-day moving average has been more of an overhang above the price rather than an actual resistance level in recent weeks.
Wells Fargo & Co. (NYSE: WFC) is at $26.92; its 50-day moving average is $27.69, and its 200-day moving average is $24.86. Two days ago that 50-day moving average was $27.83 and its 200-day moving average was $24.27. On October 14, the shares were at $31.28 and were at $31.32 on October 15. Its 50-day moving average is also descending and will be closer to $27.53 in the middle of next week if prices remain static here. Again, that leaves only about 2% before the moving average would be tested.
Goldman Sachs Group, Inc. (NYSE: GS) is still in a slightly different boat at $164.00. Its 50-day moving average is 171.70, and its 200-day moving average is $153.40. Two days ago that 50-day moving average was $172.74 and its 200-day moving average was $152.71. On October 14 the price was at the peak at $191.87 and the October 15 price was $188.23. That 50-day moving average is likely to be $1.00 less by the middle of next week, which would leave only about 3.5% before that 50-day would come up for a test. 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 not really one of the bogeys that is up for a test here with shares at $3.32 today. Its 200-day moving average is above the price at $3.71 and the 50-day is $4.04. Two days ago that 200-day was listed as $3.69 and the 50-day moving average was $4.04.
The Financial Select Sector SPDR (NYSE: XLF) is the most representative chart in this entire argument of whether the 50-day moving average is worth paying attention to. The XLF is even closer than its major constituents with a share price of $14.49 today. The 50-day moving average is $14.55 and the 200-day moving average is $12.83. The four top stocks in that ETF account for about 38% of the whole ETF. It has used the 50-day moving average as a key pivot point (and resistance) from the end of October, all through November, and into December. The pinnacle was also 50-days ago at $15.67 and it was at $15.53 the following day. By next Wednesday that 50-day moving average may be $14.50, making this test come into play immediately if the prices remain static. In short, the XLF is already with 0.5% of being at a critical test of that 50-day moving average.
We do not usually conduct technical analysis on the Direxion Daily Financial Bull 3X Shares (NYSE: FAS) because of its daily resets and because it has tracking errors, 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 $75.68 today, its 50-day moving average is $75.72… The 200-day is $60.23. Just two days ago that was $76.30 on the 50-day and $59.71 on the the 200-day. On October 14, the ETF share price was at $93.89, so its 50-day declining moving average is up for grabs soon as well. Could this triple leverage ETF make the event come up immediately???? We also looked at the inverse ETF, the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) shows a different picture. At $19.10, its 50-day is $20.10 and it has been under that line for four trading sessions now. This one has even more tracking error, so this should only be used for conjecture as a support line here versus a resistance line on the others.
It can also be seen in some of these stocks that in the last six weeks a series of lower lows and lower highs has been in place. It is hard to imagine a significant technical event changing the market on the week between Christmas and New Years when so many participants are not in. Unfortunately, that looks like it is going to be the case.
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JON C. OGG