Technical analysis: US Banks Correction highlights opportunities to buy on rebound October 28, 2021 214

  • The US banking sector had a strong break to a new high in the early part of the week. With the highest price reached at US$679.11.
  • The failure to sustain closure above US$675.00 has pushed the financial index back to the prospect of a correction.
  • However, technical indicate that there are opportunities to engage a buy on rebound as major bullish trend of the financials are still intact.

From the bigger picture, the S&P Financials is on a strong bullish upside and wave theory suggest that the sub-intermediate wave (5) has yet to complete. After the index has reached the lower boundary of the resistance zone, waves of selling came and we foresee a possible rebound at 635-650 for a rebound.

 

Our view maintains a bullish upside at 736-750 region, which is near the upper boundary of the wave (5) target resistance zone.

Since the completion of the 3rd ‘N” wave target at 161.8% extension level with a strong bearish candle on Wednesday confirming’s Tuesday’s shooting star. Furthermore, the Wednesday bearish candle is attempting to break below the Tenkan-Sen. Hence, crucial resistance turned support zone 2 at 633-640 offers a potential rebound to the upside. Should that zone breaks, the next support at 617-623 will be the next in line for a rebound.

The good news that surrounds Goldman Sachs is that the stock has broken out of the larger pennant from September to early October. While the breakout seems to be lacking momentum after a bearish divergence followed by a bearish candle on Wednesday threatened a deeper pullback. Nonetheless, Ichimoku has confirmed the upside and immediate support zone at US$392-US$400 offers a strong rebound.

 

The only threat that Goldman is facing is there is larger potential top forms in late August and late October. So should the immediate support zone break down strongly, then we could see a higher probability of a double top confirming.

 

Trade idea 1: Buy Limit: US$400.00. Stop loss: US$380.00 Target price 1: US$440.00 Target price 2: US$450.00

Trade idea 2: Buy Limit: US$356.00. Stop loss: US$340.00 Target price 1: US$440.00 Target price 2: US$450.00

*Trade idea 2, will be activated once the double top mentioned is confirmed. Hence, it may take more than a month to materalise.

The sell-off on Wednesday has increased to falling momentum and US$163.24-US$165.40 support zone is likely to form a corrective upside rebound before embarking on the next leg of a correction. Hence, JP Morgan is likely to head into a corrective leg into the support zone at US$150.26-US$154.13.

 

The trend is still up, especially it has broken out of the high at US$170.00 psychological resistance high.  

 

Trade idea 1: Buy limit: US$157.00, Stop loss: US$145.00, Target price 1: US$188.00, Target price 2: US$200.24

Trade idea 2: Buy limit: US$154.12, Stop loss: US$145.00, Target price 1: US$188.00, Target price 2: US$200.24

Our report on Citigroup dated 29th July is still ongoing after breaking out of the falling wedge. With the resistance zone at US$71.88-US$73.40 weakened, the probability of breaking the upside has increased especially the bullish hammer was found rebounding from the immediate support at US$69.71.

 

Bollinger band shows a contraction, which most of the time indicate a consolidation before a breakout to the dominant impulse trend and in this case, an uptrend.

 

Trade idea 1: Buy spot: US$70.31, Stop loss: US$61.00, Target price 1: US$80.00, Target price 2: US$88.24
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About the author

Profile photo of Chua Wei Ren

Chua Wei Ren
Technical Analyst
Phillip Securities Research Pte Ltd

Wei Ren specialises in Technical Analysis and has 11 years of experience in studying classic technical price action. He also study and research extensively on Elliott wave theory, Dow Theory. He believes that history plays an important role in how the market is reflected in the future.

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