No Joke: Leveraged Banking Action Gives Us a Possible 33,233%! (FAS)

The financials were among the first sectors to get hit during 2022’s post-Batflu bout of bearishness.

So it stands to reason that they should be among the first to rebound, if and when a rebound occurs.

Is this it?  Are we rebounding?

Before we get to the chart and attempt an answer, let’s consider two other indicators, both of which are components of our proprietary Sentimeter™, a composite bull/bear signal we developed several months before the Y2K panic hit at the end of the millenium.

The first is the VIX.

As you can see below, S&P 500 volatility has been dropping steeply for six weeks (in red) – and this despite continued weakness in the market.

What does it mean?

• Essentially, that traders foresee a stabilization in prices on the horizon, reduced volatility and very likely a bounce.
• Generally speaking, when VIX returns to its long-term moving averages (outlined in blue, above), the stabilization period is passed and a spin of buying is already underway.  It looks likely we’ll get there soon.
• At that point, the expansive nature of the daily VIX moves will give way to compression, and we’ll be on the lookout for a potential retracement top.
• Note that both RSI and MACD indicators are moving toward their respective waterlines (in green).  That, too, is a sign of price stability and bullishness.  Perfect flatlines are nearly always associated with a market that’s peaking.

Next up is sentiment, as measured by the weekly AAII Investor Sentiment Survey.

We feel this series is one of the best crass indicators of Main Street sentiment anywhere.  It therefore provides a reliable contrarian signal at the extremes.

And it’s extremes we’re seeing right now, to be sure.

Here’s the latest –

As you can see, we’re emerging from the lowest bullish numbers since at least the bottom of the Lehman bust of 2008/2009.

And that’s good news if you’re a bull.

It doesn’t necessarily mean higher prices are a lock in the days ahead.

Just that we have to be on guard for them.

And remember: turns are usually swift after powerful declines like those we’ve just experienced.

Full Circle

And that brings us back to the Financials.

Again, it’s our conviction that the banks and brokerages will be among the quickest climbers once we get an initial buying surge.

As the chart below shows, there are numerous signs that the break northward may already be at hand.

This is six months of the Direxion Daily 3x Financial Bull Shares (NYSE:FAS) –

And it presents a number of heavyweight technical features –

1. First, we have both RSI and MACD diverging positively against price (in green), a fair indication that momentum is now rotating toward the bulls.
2. Also, the number of accumulation days (in black) is beginning to increase.
3. Price-wise, we see a falling wedge taking shape (in red) – though it might be premature to conclude that’s the pattern that will ultimately emerge.  If we see a climb above 65, we can be confident a longer-term rise is underway.  If it carries through to 70 – watch out!
4. Support that a bottom has formed also comes from the island reversal pattern (in purple), a reasonably reliable indication of a change in trend.
5. And finally, there’s the gap to 78 that needs filling (in blue).
6. Beyond that, there’s no current overhead resistance until the 137 DMA, now at 104 and falling.

Could it climb that high…?

May it be His will!

The trade is only a month in duration, so we’ve labeled it SPECULATIVE.

And it looks like this –

A Jew and His Money recommends you consider buying the FAS August 19^th 75/85 CALL spread* for $1.63 (1.99/0.36) and selling the FAS August 19^th 51 PUT for $1.60.  Total debit on the trade is $0.03.  Set a STOP sell on the shares at 51 to avoid any loss.

[*Buy the 75 CALL and sell the 85 CALL]

Rationale: the trade offers you a maximum gain of $9.97 on just three cents spent.

That’s an incredible 33,233% should things pan out.

On the flip side, max loss is that same three cents – so long as proper STOPs are in place.

How’s that?

Well, should the initial STOP sell at 51 get triggered, you’ll have to reset a STOP buy at that level (51) to keep the trade square.  Should that STOP get filled, you’ll again have to set a STOP sell at 51.  Ad infinitum.

An open STOP order at 51 should be in place until the trade closes, or we instruct you otherwise.

Good Jews and Noahides: there’s a war of the gods playing out over the entire planet now, but the victor is already known.

!ה’ צבקות שמו

Hashem, Master of Legions, is His name.

Put your money down early, friends, while the odds are still greatly in your favor.

With kind regards,

Hugh L. O’Haynew

Follow @HughLOHaynew