Trading On margin

Find an opportunity during the US Holiday Trading Week

It’s Independence Day week, and it usually leads to lighter trading volume. There is little economic data this week, so let’s look for some potential opportunities.

Last week’s nonfarm payroll data was a refreshing change of pace for market participants. While the market expected 700,000 jobs to be added in June, the market got a drawdown of 850,000. The move rose on Friday, relying on about 25 handles from the time the data was released. published and closing.

It was one of those Fridays when the market was up relative to economic data and continued to drift higher. Pre-holiday trade has also been factored in here and volumes appear to dry up in the afternoon. On days like this, you will have to come up with a very compelling reason for getting something long or short. Most professionals closed their books before the long weekend and just wanted to be flat. Over the years, I’ve learned that Fridays are my least productive trading days, so I personally seem to be flat and / or only having long-term swing trades or long-term swing trades. position trades before a weekend.

It’s a useful preview, but so it was last week. What can we find this week?

First of all, I want to mention that this week is light on the economic data front. Tuesday we get the ISM Services PMI (manufacturing expansion or contraction). Wednesday we receive the Minutes of the FOMC meeting, which could add additional depth to the Fed’s latest statement. We expect a week of light volume holiday week style trading on the major exchanges this week.

Tropical Storm Elsa

We also have Elsa – currently a tropical storm (and hopefully will remain so). Business themes tend to focus on energy, insurers, and orange juice during Florida storms. I am writing to you right now from Elsa’s intended path, and I hope it will be weaker than expected. Personally, I would try to make Elsa disappear. I’m kidding a little, but did you know that you actually can commercial weather?

SPY Daily Chart.

Figure 1 – SPDR S&P 500 ETF January 29, 2021 – July 6, 2021, 10:10 a.m., daily candles Source

A simple observation: The S&P 500 has been higher in nine of the last 10 trading sessions. He has been unfazed and looks forward to this week on a lighter volume; it may take a surprising catalyst to bring the index down significantly. We are approaching technical overbought levels according to the RSI (14), but what could be a catalyst for significantly lower prices? Lateral consolidation could be the next short-term theme on the light volume of vacation weeks.

Given the expectations for this week’s style, and not wanting to pursue a higher index that is approaching daily overbought levels (but also not trying to be short), we can turn to particular stories and themes. in order to find a potential opportunity.

Let’s talk about banks and KBE

Now that we’ve ruled out the first hint of the Fed’s interest rate hike, we can think about longer-term bank stocks. Higher interest rates can create a net expansion of the interest margin for banks and increase the bottom line.

Many bank stocks initially sold on the Fed news (buy rumor, sell type trade done). Now that we’ve taken a step back in bank names, I’m starting to analyze ETFs for opportunities.

KBE weekly chart.

KBE weekly chart.

Figure 2- KBE S&P Bank ETF October 30, 2017 – July 6, 2021, weekly candles Source

Above we have the SPDR® S&P Bank ETF (NYSE :). You may be thinking: banks? They are so boring! The truth is, I like to be bored. There is already a significant pullback from the banking sector highs of the S&P 500. We like to buy pullbacks in bull markets, don’t we? The chart above is a weekly chart, and we can see the price is approaching previous highs reached in late 2019 and we are at the bottom of the most recent consolidation range.

Perhaps a quieter S&P 500 this week may present an opportunity for an ETF that has fallen more than 9% from its 2021 highs; as the S&P 500 continued to hit new highs.

Let’s move on to the daily chart:

KBE daily chart.

KBE daily chart.

Figure 3- KBE S&P Bank ETF September 1, 2020 – July 6, 2021, daily candles Source

We have several levels to consider here. First, we are very close to the recent low point in the consolidation range ($ 49.15) combined with the 50% Fibonacci retracement level of $ 49.02.

However, what if the broader market finally pulls out / consolidates? A drop could take the KBE to dip, potentially all the way to 2019 highs near $ 48. This pullback could be imminent and could coincide with a daily reading of the RSI (14) at oversold levels near 30 or less.

It’s the kind of thing I love to see, and I love to have a plan in place for when that happens. I like looking at the key 61.8% retracement level of $ 47.39 and 2019 highs of $ 48.11.

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