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Financial Stocks Hold Support, But will the Uptrend Refresh?

David Becker
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The Finance SPDR (XLF) was hammered last week and broke first support in the 22.50 area. The question for investor is whether this sector will continue lower and drag the market down or, will XLF firm and resume the bigger uptrend.

The XLF broke triangle resistance in late May and hit new highs in early July. This suggests that the long-term trend is still up. After stalling throughout July, the ETF broke below the lows from late June and early July with a sharp decline. This is short-term negative, but it is not enough to affect the bigger uptrend. The ETF firmed on Monday with an inside day that closed near the high of the day. Additionally,there is potential support from broken resistance and the 50% retracement.

A close back above 22.6 is needed to negate this short-term break down. New lows have outpaced new highs for the first time since mid-May as High-Low Percent dipped into negative territory. Look for a move back above +5% to signal a rebound in High-Low Percent.

JP Morgan (NYSE:JPM) has gapped up in mid-July, stalling around 59 and plunging below 57. This gap failed to hold and it looks like JPM is putting in a lower high. The trend since mid-May, which represents the immediate trend, is still up with the mid May trend line and July low marking key support. This is the make-of-break support level. The trend remains up as long as it holds. A break down would reverse the uptrend and raise the possibility of a bigger downtrend unfolding.

JPM has held the 200-day moving average but momentum on the stock has turned negative. This occurs when the MACD (moving average convergence divergence) index generates a sell signal. The spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.

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