The technical condition of the investment banking sector (^XBD) is not encouraging as the chart pattern is one of a descending wedge which has often been a precursor to a downward breakout. It seemed feasible that certain part of the financial services area would mount a snap back rally from an oversold condition, and this can still not be discounted, but the formation on the chart below suggests that the investment banks may have to remain out of favor for some time before better days return.

Decisions being taken by some of the largest firms to jettison highly paid investment bankers is not taken lightly as these banks have had to pay substantial compensation to attract their intellectual capital. Letting such talent go reflects the moribund nature of the securitization business as well as other serious slowdowns in the sector's earnings ability in the future.



One of the more interesting items of news yesterday was the admission by Goldman Sachs that it had made the wrong call on the financials and consumer discretionaries in the wake of the mid March liquidity scare. The bank has essentially issued a sell signal on both sectors and on cue many fund managers seem to be baling out as evidenced by the weakness in the exchange traded fund XLY.

For day trading short sellers though the risk/reward ratio at such depressed levels, where a snap back rally could be quite sharp, has to be weighed carefully.



Another victim of the gathering gloom about the state of consumer finances is seen in the chart for the S&P retail sector (^RLX) as it has dropped to the bottom of its 2008 range. We could be about to find whether the range bound price activity of the last six months is about to give way as the sector could be seeking out a lower floor for the range.



Amgen (AMGN) has one of the most positive looking charts for the bulls.



Dress Barn (DBRN) is one of the retailing stocks that displays a deteriorating technical picture that suggests that the intermediate outlook is for further weakness.



It would be worth monitoring Verisign (VRSN) over the near term as the early June peak was evidently not confirmed by encouraging volume and momentum characteristics.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

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