It's All About the Awful Banks

 | Nov 01, 2013 | 7:30 AM EDT
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I noticed something on Thursday during the trading day. Folks became concerned about the small caps. It was like all of a sudden they noticed that the small caps have lagged for a couple of weeks now. That's probably what happens when the Russell is down by more than 1% and the Dow and other indexes are not.

But I noticed very few said anything about the awful banks. (Yes I am back on this topic again, giving you some relief from my constant complaining about Nasdaq). The bank index relative to the S&P made a lower low. Of course you know this because you have been following along with me as I have posted this chart here several times of late.

If we were in a market where stocks actually went down and stayed down then I would tell you the charts of JPMorgan (JPM) and Citibank (C) are tops no matter how you look at them. Yet miraculously these two charts have gotten saved time and again.

JPMorgan is almost a textbook head and shoulders top. If the Fed were not so friendly I would say it will break 50 and eventually make its way toward 44. But like a cat with nine lives, it gets saved over and over again. Watch that 50 level because if it ever breaks with any gusto I think folks will notice it and the rest of the market will care.

I don't want to get into a lot of minutia on the chart but one alternative is that it goes down to 50 and then rallies to another lower high, near the underside of that second uptrend line, so call it 52-ish, and then we can draw in a third uptrend line, called a fan line, which would mean the next trip down toward 50 could break a third fan line and a support line at the same time. For those not familiar with fan lines, it's like baseball, three strikes and you're out; the third fan line is the real breakdown.

Citibank has a different kind of top in that it is not a head and shoulders top; just a top. And like JPMorgan's 50 level, 48 is the line in the sand for Citi. A break of that and the first measured target is near 43. But again, see how difficult it has been to break under this. No amount of taper, no-taper, or legal fines or regulations or any other impediment to the banks has managed to put the nails in their coffins (yes, that is a Halloween reference!).

So while I am still focused on Nasdaq's statistics and the lagging Russell 2000, I am also focused on the poor acting banks. If they can get saved, the market can correct calmly. If they cannot get saved I do not expect the rest of the market to sit by and watch idly.

Short term we'll be moderately oversold shortly. Intermediate term you can see there is still plenty of room before we get to that point.

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