In this report we will study the PCI ”stock index – finance”. It includes the stocks of major US financial companies and banks. The index may decline amid the economic policy of US president Donald Trump, that is to support mostly the industrial but not financial sector.
It might be hard to support both industrial and financial sectors. Investors doubt the Fed is determined to hike the rates significantly this year. Low rates limit the income of financials. On the contrary, the industrials benefit from low rates as they mean lower credit burden. Previously, the S&P 500 Financials index surged 38.5% in recent 12 month on expectations of the Fed rate hike. This is far above the growth of S&P 500 by 22% within the same period. In theory, banking stocks may fall even more in case of the general correction of the US stock market.
On the daily chart &Finance_Stocks: D1 has surged to the 9-year high after the victory of Donald Trump in the US presidential elections. Now it has been trading for the 10th week in a narrow neutral range. The position may be opened when the personal composite instrument leaves the sideways range. Let’s consider the option of sale as technical analysis gives more bearish signals.
- The parabolic indicator gives bearish signals.
- The Bollinger bands® have widened which means low volatility.
- The RSI is below 50. It has formed negative divergence.
- The MACD is giving weak bearish signals.
The bearish momentum may develop in case &Finance_Stocks falls below the 7 last fractal lows, the lower boundary of the neutral range and the Bollinger band at 120. This level may serve the point of entry. The initial stop-loss may be placed above the 3 last fractal highs, the 9-year high, the parabolic signal, the Bollinger band and the upper boundary of the sideways range. Having opened the pending order, we shall move the stop to the next fractal high following the parabolic and Bollinger signals.
Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level at 126 without reaching the order at 120, we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Summary of technical analysis:
Position: Sell
Sell stop: Below 120
Stop loss: Above 126