Shares of Charles Schwab (SCHW) - Get Report took another huge hit on Monday. The stock finished yesterday's session with a 8% loss on its heaviest downside trade since March of 2012. Combined with Friday's nearly 12% flush, Schwab is now off 20% over the last two days. Volume on Friday was also extremely robust.
With sellers in complete control and key support now convincingly taken out, Schwab bulls should expect more downside in the near term.
In early June, Schwab left behind an ugly breakdown gap. Following a disappointing unemployment report on June 3, which wiped out hopes of a rate hike over the summer, Schwab left behind an ominous high. A few sessions later, the stock was trading back below its declining 200-day moving average, a level it had worked extremely hard to overcome just three weeks earlier. The stock appeared stuck in neutral as overhead pressure continued to build.
This continued until the day before the Brexit vote, when Schwab gained over 4.5% with the help of a nice bump in trade. The nasty downside reversal that followed caught many a Schwab bull leaning the wrong way. In the near term, this will certainly weigh on the action.
Now that the key support zone near the $25.50 area -- which includes the February high, 2015 low and March low -- has been obliterated, Schwab has little support in play until the 52-week low is retested. It's likely that a bit of back-and-fill action will take place before major support at the 2016 low is tested, but the bear trend appears to be headed that way.
For patient investors, a drop down to the $22-to-$21 area, coupled with a return to oversold in the moving average convergence/divergence indicator, will create a very low-risk entry opportunity. Until then, Schwab is likely to be a volatile and painful long.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long SCHW.