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The S&P 500 & the Financial Sector May Have Been Naughty This Year

Chris Vermeulen
By Chris Vermeulen / December 15, 2010

Price action in coming days will help us determine if this is just a pause before a breakout or whether the BKX index is telling us that prices are headed lower in the financial sector. If the KBX, XLF, & KRE start to breakdown, as traders we should anticipate that the broad markets such as the S&P 500 will likely follow.

The Tuesday morning session saw the S&P 500 climb higher, only to be sold off in the afternoon eventually closing up around 1.13 points (+0.09%) while the Dow Jones Industrial Average rose 47.98 points (+0.42). However, the Financial Select Sector ETF $XLF closed the day down (-0.89%), the KBW Banking ETF $KBE closed down (-1.55%), the KBW Banking Index $BKX was down (-1.52%), and the KBW Regional Banking ETF $KRE closed up (+0.28%). While the broader markets were in positive territory, the banks for the most part were under suspicious selling pressure.

The S&P 500 weekly chart indicates that we are approaching some major overhead resistance levels. Is the financial sector trying to warn us of potential downside? Is the rollover in the banking sector a head fake before they break higher and the S&P 500 follows suit? It is impossible to know for sure at this point, but I for one will be monitoring the financial sector quite closely for any possible clues about possible direction on the broad domestic indices.

Is Santa going to put a lump of coal in Wall Street’s stocking this year? That question will be answered in due time, but for now investors and traders alike should be watching the banks as the broader markets will struggle to rally without their participation.

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J.W Jones

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About the author

Chris Vermeulen

Chris Vermeulen is Founder of the popular trading site TheGoldAndOilGuy.com. There he shares his highly successful, low-risk trading method. Since 2001 Chris has been a leader in teaching others to skillfully trade in gold, oil, and silver in both bull and bear markets. Subscribers to his service depend on Chris' uniquely consistent investment opportunities that carry exceptionally low risk and high return.

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