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Zions Bancorp Ready For A Tumble?

09/30/11 09:12:47 AM
by Donald W. Pendergast, Jr.

While some financial sector stocks have recovered a portion of their summer losses, shares of Zions Bancorporation have not, and in fact appear to be setting up for another leg lower.

Security:   ZION
Position:   N/A

During a major correction in a stock, one destined to travel a long way down, it's very typical to see a midpoint consolidation area after the initial run lower. These range-bound price consolidation zones, if they drag on long enough, can give bullish traders and investors a false sense of confidence, as they begin to get the impression that the stock has finally bottomed out. However, if they fail to note that the money flow histogram is still mired below its zero line, they might be getting more bullish than the actual technical situation warrants.

Such may be the recent case in shares of Zions Bancorporation (ZION). Sure, the stock had a nearly 40% decline during July and August, and that might make bullish traders and investors think that a 38% to 50% retracement would be expected going forward into autumn, but check out the very negative money flow (CMF)(34) trend in the stock. It's been below its zero line for eight straight weeks now, even as the stock is getting set up for another retest of the new swing low it just made a few sessions ago. Not a pretty technical picture, and although some technicians would also be quick to point out the emerging price/money flow bullish divergence (money flow trend gradually rising, even as prices continue to fall), this still looks like a chart of a stock that needs to put in a second selloff leg before the all-clear signal. See Figure 1.

FIGURE 1: ZION, DAILY. Might this be a critical technical juncture not only for ZION, but for all of the stocks in the highly volatile financial sector?
Graphic provided by: MetaStock.
Graphic provided by: CS Scientific Expert Advisor from MetaStock 11.
Running the Rahul Mohindar oscillator (RMO) swing sell exploration in MetaStock reveals a number of other financial issues that are also demonstrating weakness -- names like Aetna (AET), Discover Financial (DFS), Capital One (COF), and Hartford Financial Services (HIG), among others. Either we're in a "one final retest" on the summer lows scenario, or we're about to see yet another smash selloff as we head into October. Stay tuned, because the market move (in either direction) is probably going to be very tradable and well able to help skilled traders and investors make some nice money. Trade wisely and with money designated as risk capital only.

Donald W. Pendergast, Jr.

Donald W. Pendergast is a financial markets consultant who offers specialized services to stock brokers and high net worth individuals who seek a better bottom line for their portfolios.

Title: Writer, market consultant
Company: Linear Trading Systems LLC
Jacksonville, FL 32217
Phone # for sales: 904-239-9564
E-mail address:

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