05.05.2011 Redo in Banks coming?

As everyone is aware, we had a pretty hard sell off in commodities today. Which oddly is arriving after we've seen the 10 year treasury yield continue to plunge, even on up days in the market. We also have the IRX almost down to a flat zero.

Something is afoot. It's not just today's commodity sell off either, it's a combination of many things lately that do not make sense.

But first, lets just look at what the market is telling us. I had to pull out to a 10 week chart, from the 20 day, but we can see that the S&P is still inside of a solid rising channel. We have a bit more room on the downside to reach the bottom of that channel and the bottom should be some strong support. I would look for us getting close to 1310. But, this is still a correction until proven otherwise. A break below the bounderies of the rising channel would obviously be cause for re-evaluation. Until then, we have finished 3 waves, are completing the 4th wave and have 1 more wave up to go.

Here's the S&P chart with the channel;



Now.. on to other things that are signaling trouble in the future. I'm sure you've seen all the good earnings and wonder where a top will come from or what the next crisis will be. I think we are getting hints right now in the big banks. As has been mentioned by Reggie Middleton of boombustblog.com, the banks have been pulling down their reserves to make their profits look fatter. It's left some of them with some lean reserves. You may have also noticed a lot of the real estate in this country is double dipping pretty hard right now. That could be a problem, a big problem.

I think we are seeing it in the bank stocks. When looking at the following charts, please keep in mind these are the same time period as the S&P chart with the rising channel. So obviously much higher over the last 10 weeks, despite the recent sell off.

The XLF is also sort of flatish.. here's the XLF;



Now look at some of the individual big banks over the last 10 weeks..

Wells Fargo;



Bank of America;



U.S. Bank;



Morgan Stanley;



Those charts are not trending up like the S&P .. in fact they are all trending down and down very quickly. The broader market may take another few months to notice while the S&P finishes it's EW pattern, but this type of action in the big banks is waving it's hand at us telling us something is very wrong.

GL tomorrow.