BOTTOM LINE: Financials have likely peaked for this cycle, and remain dangerously close to crucial supports. These supports will likely break, pulling down the broader indices.
Below is a daily market cap weighted index of JP Morgan, Bank of America and Wells Fargo. The neckline of the head and shoulders top that took four months to form is about 2% away. I think breach of neckline supports is very likely, and should that happen, there is little in the way of supports until July lows. Not pretty at all.
This is a daily chart of the KBW Banks Index. So far, it is moving exactly according to plan, and yesterday's Bank of America news highs should provide very strong resistance. In the event of a bounce, those highs should be used as stop loss levels. Should those highs give way, a more complex correction is likely unfolding. I do not consider an upside break likely. Targets for this index remain about 12% below current levels.
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