Financials

Yesterday my impression of the 3C charts for Financials were such that I didn't think the open XLF Oct. $20 Calls were going to be worth anymore than they were yesterday before expiration this Friday, even if XLF is higher on Friday, that's just options. I closed the position at a -11.69% loss and moved on.

This morning CITI (C) reported and like other financials that are in the mortgage origination service, their report stunk, they missed both Revenues and EPS and that's with the extra help of the now VERY COMMON (among Financials) release of $675 million in loan loss reserves to boost the balance sheet which will go right back in to reserves after the report, C is down about -1.4% thus far on an ugly open and the broader Financial sector (XLF) is down -.54, but it's not so much the percentage loss today in XLF as it is the charts.

These were the divergences from yesterday and in to this a.m.'s open thus far that influenced my decision yesterday.

 The intraday was one of the worst as it fell off very fast yesterday

The 2 min intraday saw the same

This is a good example of a counter trend bounce or rally, it's the reason the XOM core short was covered at a profit and we have been trading it here and there with calls from the long side.

 We have the trend and a counter -trend bounce, these can often be very strong, especially in a bear market. However, even here the 3C signal suggests at least a pullback, which is no good for calls that expire this week.

This is where I disagree with Technical Analysis dogma and particularly with Dr. Alexander Elder, who I actually really like as an author, I don't think that you should turn a failed or stopped out long in to an automatic short; that may be oversimplifying a bit, but with regard to failed MACD histogram signals, the advice is to reverse your position. In the case of Financials, I don't believe a stop out of one position (long) should automatically reverse to a short, there's too many factors such as whether the trade is high probability on its own, whether the tactical entry and risk make sense, etc.

 This 30 min chart looks like it is waiting for something, I'm going to say a pullback, but it hasn't gone deeply negative, just a relative negative divegrence, almost a pause.

If we consider that it may see a pullback and resumption of a move higher, the ultimate goal is what we do with a move higher, even a bit higher... Take a look at the same chart zoomed out to scale...

 Now you can see that there have been a series of counter trend bounces or rallies in something VERY close to a downtrend, we are just missing 1 lower low.

Intraday we have what looks like a bear pennant, like a bear flag, I'd watch for that to be gamed; in fact I just checked and it is being gamed. Technical traders see it as a consolidation/continuation pattern meaning it should break to the downside, but these patterns are often used against technical traders and a run above resistance stops out new shorts and maybe even encourages some longs, ultimately though, XLF should find its way lower, it's not a short I want to take right now, but there are a couple of nice trades that look like they'll set up, both long and short very soon.