Financials Rally

By Jim Farrish | August 29, 2008 | 11:40 AM | 0 Comments

Yesterday the financials moved up 4.1% on MBIA’s news they completed a reinsurance deal on a municipal issue netting them more than $700 million in fees. The strong GDP data helped putting investors in a charitable mood. I wanted to take a look at (NYSE: IYF), ishares Financial ETF. First the daily chart below shows clearly shows the down trending channel for the sector. After hitting a new low in July we have found new support at the $67.72 level with resistance at the $75 mark. That also brings into the play the downtrend line near $76.50. The point here is plenty of resistance overhead to confront. Momentum is negative showing the lack of faith by investor short term. This leads to the initial conclusion this sector should be traded not held technically. Turning our attention to the fundamental data will not help at all since the balance sheets are still disaster area. I would play the trading range short term and look for a break to the upside through the two resistance points.

To clarify things further let’s look at the weekly chart. Stepping back helps put things in perspective. The down trending channel is still in play as you can see. A key point here is the support goes back to the bottom in 2003. This could become the turning point for the index in 2008. There is still plenty of work to do to determine that, but it is worth watching. The support/resistance points on the weekly chart coincide to the daily chart with the addition of $78.78 being the March low. There is plenty of work to do, but the bottom process is in play and worth paying attention to.