The JP Morgan tragedy is all the news today and rightfully so as it hits at the core of the issues from the 2008 financial crisis. The loss was big, but the confidence issue is the bigger loss. There is not reason for me to rehash what is in the news and I am more focused on the impact to the financial sector overall. JPM is trading down 7% and the banks are offer nearly 1.5% as a whole. Here is where our attention should be spent, looking for the parts that have nothing to do with this type of activity.
KBE, SPDR Bank ETF is trading near support at $22.50 and is likely to dip below that level on the news. Watch the downside support and any opportunity on the emotional reaction from investors. The uptrend is still in play and the six week consolidation pattern will be broken on the downside currently. $21.80 is the next level of support and opportunity if it holds. The key is to let the air come out of the emotional balloon and define a reasonable entry. If the emotions get too loud step back and let it settle, but keep this on your watch list near term.
KRE, SPDR Regional Bank ETF is also near support at $27.05 the downside should be less for the regional banks, but the emotions of the situation may sell anything with bank in the name. Step back and evaluate the outcome and find the resulting opportunities. If the support gives way to a lower level, $25.50 short term, let the trade develop before you jump into any positions. There will be time to find the stocks that are worth owning.
Digging into these ETFs will lead you to the stocks that have the strongest support from investors. One in the big banks that stands out from my first look is Wells Fargo (WFC). The stock is down nearly 2% this morning and they are one of the few large banks not in that business. $32.20 is support and the impact of the JPM news may push them below that mark. I am looking for the opportunity in the move as this plays out. The regional banks turned up BB&T which has been in a solid uptrend. My focus in this search is first looking for any trading (0-13 weeks) opportunities, but also to find stocks I can add to my long term portfolio positions such as Wells Fargo. The news is unsettling as it hits at the confidence factor and the banks have just been restoring that very issue over the last year. Time heals all wounds they say, let’s see how this plays out.
Outside of this major headline the commodities remain in a downward trek. Oil is testing lower again with $95.50 the support level to watch. The trading this week has tested that support twice and held. I have been looking for a bounce opportunity on the oversold conditions, but it has not materialized. Natural Gas has been the one bright spot in the commodities, but you have to remember it sold off 50% since December 15th! The bounce off the low near $14 on UNG is great and our target short term is $20, closing at $17.70 last night. The Agriculture space (DBA) remains in a downward trek. The short trades have been working in this sector, but you have to be aware of the demand side. At some point, like natural gas, there will be support and a bounce/reversal.
Gold and silver are heading lower as well. The stronger dollar has not helped any of the commodities and based on the current events in Europe the stronger dollar may be around for awhile. The dollar index is hitting against resistance at the $80.40 mark currently. Our target is a move towards 81.60 near term.
Keep your focus and let the emotions of JP Morgan play out today. Look for the resulting opportunities both long and short, but remain disciplined!