Banks Remain Under Pressure

The Dow Jones US Bank index is struggling. Support since the surge higher in July has been near the 210 level. The index broke below this level and the 50 day moving average. The move back above these levels yesterday was hopeful, but the volume was weak on the move. Technically the break of the up trendline was a negative. The failed attempt at breaking out of the consolidation in October was a negative and the 20 day now crossing below the 50 day moving average is a negative. Fundamentally things don't look much better. After  positive second quarter earnings the third quarter wasn't as advertised. Balance sheets remain an issue and the outlook for fourth quarter wasn't promising. Thus, the new down trend in play short term.

We have to watch for this to break down. The bias is to the downside and the opportunity is if the break down follows through. The 200 day is offering some attempt at support and a confirmed break below that level would be a clear exit point if you still own the sector. This would also be an opportunity to establish a short play on the sector. I am not advocating rushing out and being short banks. The broad market is bouncing off support and if it continues banks are likely to get carried along for the ride. As you can see they moved up 2.8% with broad markets yesterday (11/5). This is a sector I would put on my watch list with a negative bias and determine my entry point on the downside to put a short in play. Don't force your trades let them develop with a predetermined strategy of how to play the move. Entry, Exit and Target must be defined prior to putting money at risk.

(NYSE: KBE), SPDR (NYSE: KBW) Bank ETF would be one way to play the sector (long or short).

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