Karpel’s Corner: Big Banks test support; Metals begin to shine

Welcome to Karpel’s Corner. This is where I throw out my thoughts on the markets and share some of my favorite strategies. I keep it market-focused, and never miss an opportunity to teach trading strategies and commentate on the latest trends affecting the financial markets. Hope you enjoy today’s post!

The Financials blew through initial support, with $22.50 on the $XLF, which has the major banks on the radar for some potential volatility. The bounce in the sector has the bulls breathing a sigh of relief, but we need to see higher highs to have any confidence.

The big banks and brokerage firms are on watch. Most notable are Chase ($JPM) and Morgan Stanley ($MS). Both banks have an implied volatility (IV) rank below 40 percent with high option volume. We are watching the IV rank closely. If we reach 50 percent or higher–meaning that the IV is 50 percent higher than its 52 week low–we could be in for some more fireworks.

Now, the market has rebounded nicely, so it is not like we are looking at crash mode. But I do want to point out the flags to look for that could help spot choppy waters ahead. This move in the
banks could be a large shift out of that sector and into more favorable sectors like the Metals and Mining ($XME). A move above $42.5 on $XME would be potentially bullish, and from a technical standpoint would complete a bullish formation called a cup and handle.

That’s it for the markets. But I’d like to take the opportunity to thank our team at Tradespoon for the new website roll out that just went live over the weekend. This was a team effort and we do have the best team members around. So, thanks guys! We also want our users’ feedback. Please send it to us at [email protected].

See you next time at Karpel’s Corner!