Has the market turned?

In my view, the odds continue to grow that the Financials have put in a short to intermediate term low.

This week, the FAS put in a higher swing high on the daily chart, the SP500 has made a marginal new swing high, the Volatility Index has broken down below support at the 30 level, and the US Dollar Index has given up all of the gains of its recent breakout. And though the market has been short term overbought as per the NYSE McClellan Oscillator, the market has still risen. Some of the European banks have also put in higher swing highs (DB, BCS). These are all bullish signs, especially since it is happening in the month of October, which is often times a bear killer.

To me, all of these things strongly suggest a short to intermediate term low has been put in, and dips can be bought. However, I beleive that part of the bullish move over the past week or so has been predicated on Europe getting serious with how it deals with its sovereign debt issue. They have been making the case that a new plan will be revealed at the next G-20 meeting, scheduled for November 3. I will be watching market activity leading up to and after this event. If the European plan fails to impress the market, then a retest or break of the early October lows would be increasing possibility.

I am still long 3 lots of FAS, at an average cost of 10.32. I have open orders to sell 1 lot at 13.65, 15.65 and 19.65. Depending on how the FAS chart sets up over the coming days and weeks, I might add 1 or 2 lots to my current 3, or if my sells get filled, I might put those lots back on. To me it all depends on the chart and the news flow.

Since this summer, my IRA is up about 15% on closed trades, and is up about 10% on the open trades. This has definitively been a good run. I want to stay focused on the charts and the news flow, and ideally book some profits at higher levels.

Disclosure: Long FAS.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***

Some issues impacting the longer term profitability of the Financials.

As I continue to trade the financials via the FAS and the FAZ, I am reading more about their fundamental issues going forward. The overall tone of the news and regulations is that the financials will be much more regulated, and will rely more on fee and commission income and less on trading income. This could impact the longer term profitability and the profit growth of the industry, and thus the trading multiple that investors will be willing to pay for shares of the financial companies. This might impact a return to the mid 30s in the next 2-5 years for the FAS.

I will still continue to trade the FAS and the FAZ, but I might have to adjust my longer term upside targets.

Here are some recent articles that caught my attention:

• Banks brace for fallout on earnings
• With Volcker Rule, Wall Street Braces for Change

Having said that, Slovakia voted no on the Europe Bailout today, but the financials did not take a big hit. Perhaps some of the bad news is priced in on a short to intermediate term basis.

 The market is also relatively overbought on a short term basis, but did not sell off today. I wonder if this is another sign that most of the selling in the short to intermediate term is complete.

Disclosure: Long FAS.

***remember this is an illustration of what i am trading and my thinking...it is not a recommendation for you or anyone else to buy or sell this or any other security...trade at your own risk...my positions my change at any time without notice***