A DRILL DOWN OF FINANCIALS -- THE LARGE BANK AND REGIONAL BANK ETFS LOOK STRONG -- JPM & WFC LOOK HIGHER AS BAC BREAKS A BIG TREND LINE -- CITI COMPLETES A ROUNDED TOP -- VISUAL CLUES FROM GOLDMAN SACHS AND MORGAN STANLEY

A DRILL DOWN OF FINANCIALS... The financials are a critical component of the market. Ned Davis uses the phrase that financials will show the trouble before other sectors. So we have now had a 3% correction on the $SPX and it seems to have found support at the very important 1840 level. Chart 1 shows the $SPX bouncing off support today.

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Chart 1

THE LARGE BANK AND REGIONAL BANK ETFS LOOK STRONG... We have lots of choices for tracking the financials but today I want to zoom in on specific areas. Here are two of the ETF's focused on the banks and regional banks.
Chart 2 is KBE. There are a few clues that make this important to watch now. First of all, the SCTR at the top broke to new lows recently that coincided with the $SPX breaking to lower lows. But this SCTR line means the banking stocks behaved worse than most during the pullback to the February low. Recently the SCTR has started to weaken over the last few days. At this point this is a cautionary signal. The price plot shows support at 31. The trend line shows support at 32. Recently, the volume has accelerated above average for 4 of the last 5 weeks. The MACD is still strong with a few subtle hints of lower highs and lower lows. The MACD is still well above zero, but the momentum is obviously declining. Lastly on the ratio to the $SPX, it recently put in a divergent lower high as marked by the red arrow. A new high on the ratio (moving above the red line) would eliminate our short-term concerns. A break of the blue upward trend line would probably confirm a MACD moving below zero and price pulling back more significantly.
Still strong with a few subtle hints of softness. Looks good.

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Chart 2

KRE looks a little stronger in Chart 3. The relative strength at the bottom of the chart recently made a higher high. The momentum is still waning on the MACD and the SCTR is holding up here.

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Chart 3

JPM & WFC LOOK HIGHER, BAC BREAKS A BIG TREND LINE... Looking at JPM and WFC these charts are intact.
JPM has a slightly lower high on relative strength in Chart 4 and the SCTR is stuck mid range below 75.
WFC has everything going positive at this point. The SCTR recently broke out and WFC is behaving better than 82% of the large cap stocks from all sectors. At this point, an investor would watch Chart 5 for the MACD roll over and we would want to see the price hold above the up sloping trend line.

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Chart 4

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Chart 5

BAC has broken the 18-month trend line on Chart 6. While the SCTR continues to make lower highs it also is making higher lows. The MACD is just horizontal. No real fear and a slight negative divergence. Lastly, the relative strength is testing the trend line. This chart needs to be watched closely or downside protection put in place. It has not closed the week below the trend line so the Friday April 11 close level is important.

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Chart 6

CITI COMPLETES A ROUNDED TOP... C (Citi) is building a major rounded top on Chart 7. We can see the up sloping trend lines are steep. When the SCTR and the relative strength plot at the bottom failed, the best of Citi was over. While staying in the stock would have given you slightly higher prices if you had sold on one particular week. The bottom line for the weakest bank is that it is rolling over and unable to get back above the 40 WMA shown in green.

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Chart 7

VISUAL CLUES FROM GOLDMAN SACHS AND MORGAN STANLEY... Goldman Sachs has really started to lose momentum as shown in Chart 8. The SCTR continues to get weaker and weaker. The big blue trend line has been broken. The MACD has been declining for a year. The Relative strength trend line break in April 2013 did not matter. While Goldman continued to progress higher as the relative strength went sideways for a whole year, we can see the momentum waning in the stock price. GS has now failed at the 40 WMA and the MACD is approaching zero. The SCTR shows GS as one of the weakest stocks in the large cap group. This seems so odd, with all of the stocks IPO'ing in the last few months. GS has not been below the 40 WMA since 2012. Broker dealers can be an early indicator.

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Chart 8

Morgan Stanley is a similar story as shown in Chart 9. Just a little different. The relative strength trend lines were more valuable on this chart. The signals on the indicators are giving exit signs.

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Chart 9

IAI is the iShares product for the broker dealer tracking ETF. The indicators on this chart 10 have broken down. Price has now broken through the trend line and closed below last Friday to mark a low weekly close.

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Chart 10

The Bottom Line:
The Broker Dealers are breaking down. For the major and regional banks they look pretty good. If the brokers are a leading indicator, investors in the bank stocks should monitor any change in the group closely. The BAC break of the trend line suggests something is changing but the charts look constructive so far.

SOCL SOCIAL MEDIA ETF IS IN THE 1 %, BEHIND THE OTHER 99%... The social media ETF has fallen so far out of favor it ranks as the lowest ETF in the ETF group. Bottom fishers may want to start looking if they think the pullback is over. The SOCL ETF is shown in Chart 12.

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Chart 11

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Chart 12

EEMA � EMERGING MARKETS ASIA PERKS UP... To see the Asian emerging markets perking up is comforting. While this ETF has low volume it may point investors to clues in other symbols.Chart 13 shows the EEMA.

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Chart 13

EEM CONTINUES TO RUN ... The emerging markets have been discussed in quite a few posts over the last few weeks. EEM is shown in Chart 14. As both Asia and Latin America emerging markets are moving, it might be a nice ballast if the US markets are taking a breather.

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Chart 14

Yesterday the Latin America emerging markets were rolling, today Asia and the broader emerging market ETF's were perking up. There seems to be something to this rally. If the SCTR's can push up into the 70 area, this could be very powerful.
Good trading,
Greg Schnell, CMT