While the image is really about credit cards, I am sure that you see my point that it applys to banks in general. The banks are definitely being tested today. I find the opening tape to be interesting because the financials are being taken down, but not the entire tape. One look at the difference between the VIX and the VXN tells the tale (VIX is up, meaning volatility is huge on the S&P which is weighted heavily to the financials, while the VXN reflects volatility on the Nasdaq 100).This brings me to the XLF. Since the credit crunch started, I have been tracking this ETF and occasionally have used the ETF as a hedge against my long positions. Today, it is being tested (See chart). It is down big, but may put in a reverse head and shoulders that could spell some positives for the market on this options expiration week. The conditions for this to happen are if the XLF holds $26.00 and reverses. It could also happen tomorrow as well, if it doesn’t happen today. If it fails, then it could test its lows.
I believe that what brought the market down originally (financials) will also lead us out from the bottom. That is why I am focused on the XLF.
P.S. As I was writing this, the market moved up suggesting a possible bounce here.
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