Financials Could Lead Broad Stock Rally

The stock market appears to be on the verge of a big move, and a breakout by financial stocks could be the catalyst for a broader rally.
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By Chris Vermeulen of TheGoldAndOilGuy.com

NEW YORK (

TheStreet

) -- Something big is brewing for the stock market -- at least that's what most traders whom I've been talking to think.

One potential catalyst for a move upward would be a breakout by the financial stocks, which I discuss below.

Most traders don't want to place significant trades until there is a clear direction, however. The broad stock market has been consolidating for almost three months, and it's important to remember that the larger the consolidation, the bigger the move.

The biggest and best moves come from failed patterns. This makes one wonder whether the big head-and-shoulders pattern on the

S&P 500

that everyone is yelling about portends a significant selloff or is a

big

fake out.

Only time will tell, but whichever way it moves, savvy traders will be able to profit.

Below are a few charts pointing out patterns and trends that could provide some opportunity in the coming days or weeks.

Financial Select Sector SPDR

Financials play a large role in moving the major stock market indices, so if this reverse head-and-shoulders pattern seen on the

Financial Select Sector SPDR

(XLF) - Get Report

exchange-traded fund see a breakout to the upside, then the indices should rally and this ETF could reach its measured move of $16.50.

Crude Oil ETF

United States Oil

(USO) - Get Report

, an ETF that tracks crude oil, almost looked like as though it would break out and move higher this week, but sellers jumped in, sending it lower once again. The daily chart shows a large bearish pennant, which is known as a continuation pattern. So it looks as though we should see lower prices for oil.

Gold ETF

SPDR Gold Shares

(GLD) - Get Report

have been sliding lower for several weeks now, but selling appears to be nearing exhaustion. The fifth wave down with the volume spike indicates panic selling as investors cannot hold onto their positions any longer. This is a bullish sign for gold. Also we are seeing gold fall deep into a support level as well as into the 200-day moving average.

Mid-Week Financial, Oil and Gold Trading Conclusion

In short, the equities market is in limbo until a clear trend is established. If the financial sector breaks out to the upside then we should see a sizable rally. As for oil, it looks to be tradingnear the middle of its range but is still in a downtrend overall. Gold is almost looking ready for a bounce, but I am waiting for more confirmation before making a move.

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www.thegoldandoilguy.com

-- Written by Chris Vermeulen in Collingwood, Ontario, Canada

Chris Vermeulen is founder of the popular trading sites www.thegoldandoilguy.com and www.ActiveTradingPartners.com. There he shares his highly successful, low-risk trading method. Since 2001, Chris has been a leader in teaching others to skillfully trade in gold, silver, oil and stocks in both bull and bear markets.