Financials Sending an Upside Message?
11/01/2005
It is official: The S&P 500 reversed to the upside on Friday, and nearly traversed the entire two-week trading range (1175-1205 in the e-mini futures), and in so doing, put in a key upside reversal day, which should represent a significant reversal of near term trend direction (in this case from down to up).
The upmove could turn out to be a watershed bullish event, although the indices remain below their key upside breakout levels at 10,435 in the DJIA, and 1205-1207 in the Dec. S&P.
The fact that this strength occurred right at the end of October, and just ahead of Tuesday's (Nov. 1) FOMC meeting, suggests strongly that The Street expects a year-end rally to begin within a matter of daysÂ…perhaps triggered by a catalyst from a Fed statement indicating the end of the current rate-hike cycle?
Who knows, but Friday's action, particularly in the financials, begs the question. The financial stocks were particularly strong on Friday, suggesting perhaps that the FOMC is nearing the completion of its hiking cycle (as per Mr. Gross of Pimco), or that inflation is tamer than we think... or both.
Whatever the reason, the financials might be sending us a message, and below take a look at the XLF, the Financial Select Spdr (ETF). This week's upmove is closing above its 2005 resistance line, which cuts across the price access at 30.25 and which projects higher prices into the 31.30-.70 next target zone. A hurdle of 31.70 will point to 33-34 objective in a year-end rally.
While the financial along with the energy and industrial metals sectors climbed relentlessly all day long, the technology companies in general and the semi-conductors in particular struggled (although they did recover late in the session). The Nasdaq 100 Tracking Stock (QQQQ) was particularly sluggish, but did recover from Thursday's low at 37.78 to 38.39, and appear posed to grind still higher on Monday. To get anything going on the upside, however, the Qs need to thrust above 38.50-.55, to trigger follow-through projections towards 39.
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