Taking Aim at the Lagging Financials

By Cory Mitchell | September 04, 2013 AAA

Over the last 3 months the Financial sector has been one of the worst performers, down 4.7% according to Finviz. Over the last week it has also experienced some of the biggest losses with being down 1.6% . If you're not opposed to short trades, here are four to consider in the financial sector if overall market weakness continues. Keep in mind though the overall trend is still up on the S&P 500, and there is no real evidence to suggest that the trend has reversed just yet.

SEE: Profit By Understanding Fundamental Trends

ICICI Banks (NYSE:IBN) has been in a large slide since May, dropping from near $48 to a recent low of $24.94. Any pullbacks have been relatively short-lived making this downtrend very strong. This stock is not highly correlated to the overall market right now, and can be traded as such. If the price continues to move below $24.94 look for continued weakness. Potential support is $24.14, the 2011 low. Given the very strong momentum at this time, I don't think this level will hold if tested. If the price rallies above $28.20 that would be the first higher swing-high (albeit a very minor one) the stock has seen in a long time. If that situation develops, hold off on the short and let the stock pop up, but then look to get short on the next sign of weakness.

Grupo Financiero Santander Mexico (NYSE:BSMX) has been in a large overall range since it commenced trading in late 2012. The range has shown strong support between $13.25 and $13; an area the stock is currently testing. Based on range size and long-term Fibonacci Extensions, $9 looks like a good target. If the support range holds it doesn't necessarily indicate a move back to the top of the range, but the stock would likely experience at least some short-term strength.

SEE: Advanced Fibonacci Applications

JPMorgan Chase (NYSE:JPM) has been quite strong in percentage terms over the last year, outperforming the S&P 500, but the recent price action indicates a lot of profit taking not indicative of a strong stock. This latest pullback which began in late July has retraced the entire advance seen in the month prior. A drop below $50 would break the June low and a psychological level, warning of a further overall decline. Further support is at $47 to $46. JPMorgan tested $50 during the final days of August, and the level held up. If the price pushes higher I also like the short trade at a higher price, but only under certain conditions. The price must stay below the high of $56.93, and if it does then the price must start to move back down before a short-trade is taken.



General Growth Properties (NYSE:GGP) has seen a number of very strong selling waves since May, after the REIT peaked at $23.33. It is now testing strong support at $18.63 to $19. This region has been tested multiple times in 2013, and so far has held. A drop below this range indicates a downside target near $15. If the price rallies above $19.75 it is quite the likely that support has held (for now) and that at least a short-term rally will ensue.

SEE: Interpreting Support And Resistance Zones

The Bottom Line
Financials are lagging right now, and that is why I look to the sector for potential short trades. While the S&P 500 still remains in an overall uptrend if weakness continues in these stocks there is more room to the downside. ICICI Banks is not correlated to the overall market index right now, and can be traded simply as a downtrend. The other stocks are resting on support areas, which may or may not hold. Ideally, if these levels break to the downside the sell signal is strongest if the S&P 500 is dropping as well.

At the time of writing, Cory Mitchell did not have a position in any of the companies mentioned in this article.

Charts courtesy of StockCharts.com.

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