BALTIMORE (Stockpickr) -- The Federal Reserve will release its beige book report to the public at 2 p.m. today, leaving a two-hour trading window to digest the commentary on the economy. That's potentially good news given the high anxiety levels among investors right now; if the Fed can echo in the beige book Chairman Ben Bernanke's attempts to assuage fears, it could help to halt the volatility in the markets right now.
But while that volatility has sent most investors for a ride, it's proven to be a boon to traders who've cashed in on higher-percentage moves for their trades. And in the case of the high-volume stocks, that volatility has had a role in moving the entire broad market. That's why every week we take a look at the technicals of some of the biggest names on Wall Street to see how those market movers could be trading.
Technical analysis uses a stock's price movements to determine where shares are headed in the future. Technical charts are used every day by proprietary trading floors, the Street's biggest financial firms and individual investors to get an edge on the market. And according to some sources, skilled technical traders can bank gains as much as 90% of the time.
at how some of the biggest names on Wall Street are trading technically.
Financials Select Sector SPDR
is an ETF that offers exposure to the 80 financial stocks that are included in the
index. For the most part, this fund moves in concert with the broad market; The ETF has historically been 88% correlated with its parent index, and that number would have been even higher if it hadn't been for the exodus from financial stocks that investors engaged in back in 2008. Still, that divergence provides XLF with a unique chart right now -- one that's tradable for an intraweek trade.
XLF's share price has been falling hard since early April, settling most recently at a share price of around $14. Right now, that $14 price is forming a surprisingly strong support level thanks to a bullish double bottom in the stock's chart. At first glance, the implications of that double bottom are that a bounce to higher ground is on the way, but not so fast -- overhead resistance could be a problem for shareholders.
The 200-day moving average is providing resistance at $15, and in all likelihood this will be as far as this stock can travel to the upside barring any sort of fundamental news to spark shares higher. If you want to try to snipe the 5% to 6% gains, feel free, but don't expect a major move right now.
While the financial sector ETF is at least halting its slide, there's a slightly different pattern shaping up in
, one of its biggest constituents. That difference is enough to give Citi a strong bearish bias if it breaks through a key level at $3.60.
That chart pattern comes in spite of the fundamental inroads Citi has been making lately, including strong profitability in its latest quarter, a strong tier 1 common ratio and gains to be recognized from the ongoing fire sale of Citi's less desirable businesses holdings. Despite that, the company's chart is showing what's essentially a lopsided head-and-shoulders pattern, a bearish pattern that generally precedes a sizable downward move.
While XLF never formed the requisite shoulders to form the pattern, Citi did, and now a breach of the $3.60 shoulder level suggests that shares will fall quite a bit. With second-quarter earnings just a month away, the head and shoulders could be suggestive of investors' predictions for Citi. Whatever the reason, if you want to make a downside bet on this megabank, wait for shares to fall through $3.60 before putting your cash on the line.
From one beleaguered industry to another: oil. At least
is having a better year in 2010 than competitor
, but that's not saying much. Shares of Exxon have fallen more than 10% this year, despite the company's status as one of the best-in-breed oil and gas firms. But investors should continue to hold out. The charts suggest that this play is soon to see a turnaround.
Like the broad market, Exxon began falling in mid-April and accelerated the selloff in May. But since the end of last month, this stock has begun consolidating, a pattern that forms when investors are trying to digest a stock's valuation following a high-percentage move.
Exxon should continue to rattle around in its consolidation channel indefinitely. What matters, though, is how the stock exits that channel. If shares break up past $62, then test that blue line as a new support level, it's time to buy shares.
To see this week's trades in action, check out the
-- Written by Jonas Elmerraji in Baltimore.
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Jonas Elmerraji is the editor and portfolio manager of the
Rhino Stock Report
, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including
, and has been featured in
Investor's Business Daily