April 16, 2019
A very interesting price pattern is setting up in the financial sector that could lead to a very big move in the US & Global markets. Remember how in 2008-09, the Financial sector and Insurance sector were some of the biggest hit stock sectors to prompt a global market crisis? Well, the next few weeks and months for the financial sector are setting up to be critical for our future expectations of the US stock market and global economy.
Right now, many of the financial sector stocks are poised near an upper price channel that must be breached/broken before any further upside http:/price advance can take place. The current trend has been bullish as prices have rallied off the December 2018 lows. Yet, we are acutely aware of the bigger price channels that could become critical to our future decision making. If there is any price weakness near these upper price channel levels and any downside price rotation, the downside potential for the price is massive and could lead to bigger concerns.
Let’s start off by taking a look at these Monthly charts…
This first Monthly Bank Of America chart is best at showing the price channel (in YELLOW) as well as a key Fibonacci price level (highlighted by the MAGENTA line). We’ve also highlighted a price zone with a green shaded box that we believe is key support/resistance for the current price trend.
As you can see from this chart, since early February 2018, the overall trend has shifted into a sideways bearish trend. The price recovery from December 2018 was impressive, yes, but it is still rotating within this sideways/bearish price channel. Our belief is that this YELLOW upper price channel level MUST be broken in order for the price to continue higher at this point. Any failure to accomplish this will result in a price reversal that could precipitate a 30% price decline in the value of BAC. In other words, “it is do-or-die time – again”.
This Monthly JPM chart shows a similar pattern, yet the price channel is a bit more narrow visually. We have almost the same setup in JPM as we do in BAC. The same channels, the same type of Fibonacci price support level, the same type of sideways price support zone (the shaded box) and the same overall setup. As traders, we have to watch for these types of setup and be aware of the risks that could unfold with a collapse of the financial sector over the next few weeks.
We believe the next few weeks could be critical for the financial sector and for the overall markets. If weakness hits the financial sector as global growth continues to stagnate we could enter a period where the global perception of the future 12~24 months may change. Right now, perception has been relatively optimistic in the global stock markets. Most traders have been optimistic that the markets will recover and a US/China trade deal will get settled. The biggest concern has been the EU and the growth of the European countries.
What if that suddenly changed?
We are not saying it will or that we know anything special about this setup. We are just suggesting that the Monthly charts, above, are suggesting that price will either break above this upper price channel or fail to break this level and move lower. We are suggesting that, as skilled traders, we need to be acutely aware of the risks within the financial sector right now and prepare for either outcome.
This last chart, a Weekly FAS chart, shows a more detailed view of this same price rotation and sideways expanding wedge/channel formation. Pay very close attention to the shaded support channel shown with the GREEN BOX on this chart. Any price rotation within this level should be considered “within a support channel” and not a real risk initially. We want to see price break above the upper price channel fairly quickly, within the next 2 to 5+ weeks, and we can to see it establish a new high (above $78 on this chart) to confirm a new bullish price trend. Once this happens, we’ll be watching for further price rotation and setups. If it fails to happen, then the RED DOWN ARROW is the most likely outcome given the current price setup.
Any downside price move in the Financial sector would have to be associated with some decreased future expectations by investors. Thus, our bigger concern is that something is lurking just below the surface right now that could pull the floor out from under this sector. Is it a surprise Fed rate increase? Is it some news from the EU? Is it a sudden increase in credit defaults? What is the “other shoe” – so to say.
Be prepared. If all goes well, then we’ll know within a few more weeks if the upside price rally will continue or if we need to start digging for clues as to why the support for the financial sector is eroding. This really is a “do or die” setup in the financial sector and we urge all traders to pay very close attention to this sector going forward. We believe it will be the leading sector for any major price weakness across the global markets.
Do you want to find a team of dedicated researchers and traders that can help you find and execute better trades in 2019 and beyond? Please visit www.TheTechnicalTraders.com to learn how we can help you prepare for the big moves in the global markets and find better opportunities for greater success in the future. Our team of researchers and traders continue to scan the markets for new trades and incredible research for all our members and followers.
It’s easy to get sticker shock when you realize just how expensive popular stocks have become. Investing in Amazon or Google’s parent company, Alphabet, might cost you all your money to only buy one share, after all. Not everyone has the means — or the nerve — to invest so much money into a single investment.
On the other end of the spectrum are penny stocks, or stocks that trade for less than $5 a share. Most penny stocks actually cost less than $2 a share, but the rule isn’t set in stone.
Most companies that offer penny stocks are fairly new and haven’t quite established themselves as a successful business. This makes them highly speculative for investors, which is obviously reflected in the cost for a share of their stock.
Also note that penny stocks don’t trade as much as other stocks, nor do they normally trade on major market exchanges. Most companies that offer penny stock aren’t transparent enough about their financials to exist on a major exchange, nor do they adhere to the strict requirements they employ.
According to Chris Ball, a financial advisor and the founder of Build Financial Muscle, you can absolutely make money with penny stocks. In fact, the potential for profit is really the main incentive that draws people in. Not only do penny stocks allow you to invest in companies that are poised for significant growth, but you can often by a large sum of shares for very little.
Good penny stocks also tend to move up in price quickly, he says. For that reason, “people who are willing to do homework on the companies and are not easily swayed by volatility can do well.”
The key to ending up ahead with penny stocks is the same rule that guides the investing world — buy low and sell high. For example, you could get in when shares are .10 cents each and they could rise to $2 apiece. Buying 500 shares will only cost you $50 and you’d earn $1,000. Imagine what you could’ve earned with 1,000 shares or more. But this only works out if a company actually performs well.
Taking a chance on a penny stock is like playing a slot machine — you have a feeling you might win big without really knowing what it’s capable of. If you know the market and company well, you might believe a certain penny stock is worthy of your money. If you can handle high-risk investments — and can stand to lose the cash if it doesn’t work out — then penny stocks could work for you in the long run.
Penny stocks aren’t illegal in the slightest, although they are commonly used in a variety of financial scams. For example, many penny stocks get used for a “pump and dump” scheme, meaning a group of investors will artificially inflate the price only so they can sell their shares and walk away. Other companies that trade in penny stocks are predicated on false information and fraud to begin with.
Also remember that penny stocks let you invest into companies without a proven track record. As such, you may never see your money again.
Companies that trade in penny stocks aren’t on major market exchanges, don’t bring in a lot of profit, and have limited operations and resources. It’s hard to know if a company will succeed if you don’t know enough about them to predict their success.
The Security and Exchange Commission (SEC) usually regulates companies with more than $10 million in assets and more than 500 registered shareholders, so most penny stocks aren’t required to file financial statements. This leaves stockholders (and potential stockholders) to invest blindly.
As a result, the SEC considers penny stocks “speculative investments” where buyers should know the full risks before ownership.
“Investors in penny stocks should be prepared for the possibility that they may lose their whole investment,” the SEC says. “Or an amount in excess of their investment if they purchased penny stocks on margin.”
When it comes to finding penny stocks to invest in, ample research will likely be the key to your success. If the goal of investing in penny stocks is buying stock in companies that are getting ready to become wildly profitable, then you need to know how to search for this information.
While you may not love this advice, your best bet is keeping up with the financial stats and emerging news of companies that trade in penny stock. Believe it or not, you can find out a ton of financial information about small companies on websites like Yahoo Finance or Google Finance.
For the most part, you’ll want to search for the following types of companies:
In addition to conducting your own research, find someone who knows the industry well and ask them to mentor you on how to find the best penny stocks for maximum return. You will be much better off if you are able to learn from someone else’s mistakes instead of making them all on your own.
Researching penny stocks to see if you can learn to spot a winner is one thing, but actually investing your money is another. Before you throw your hard-earned cash into a speculative investment, it’s crucial to understand the worst case scenario.
The most important detail to understand is that penny stocks are extremely risky, says Ball. “A lot of the companies are penny stocks for a reason,” he says, adding that they are often “low quality companies who are potentially ready to disappear.”
Many people who invest in penny stocks lose their money altogether because they don’t have the knowledge, experience, or patience to make this strategy work.
“Penny stocks can be a tool for shady stock trading activity, leaving you with nothing,” he says.
Brandon Renfro, a financial planner and assistant professor finance at East Texas Baptist University, also points out that penny stocks can be especially risky for those approaching retirement age.
“The volatility and likelihood of failure are both too high to reliably provide a capital base from which to take an income,” he says. And that’s why he says that retired investors who are making withdrawals on their accounts “should especially avoid penny stocks.”
Renfro still says that, despite their downsides, penny stocks can be an okay option for a certain type of investor — namely, those who have a very high tolerance for risk.
Still, it’s pretty common for new investors to try their hand at penny stocks without diving right in at first. In other words, most start by paper trading — as in, they pretend to buy and sell penny stocks on paper to get a hang of it. This allows investors to experiment with penny stocks and perhaps learn the ins and outs of the industry without putting any of their money at risk.
Once you’re ready to give penny stocks a real chance, creating an account to start investing is easy. Most of the major online stock trading websites let you invest in penny stocks, including popular options like E*Trade or TD Ameritrade.