While the broad stock market keeps hope alive for the bulls, the financial sector is not pulling its weight. And within the group, stock and commodity exchanges are not only lagging but are starting to break down.

The IntercontinentalExchange Group (NYSE: ICE) appears to have peaked in early January, shortly after completing its acquisition of NYSE Euronext in November. After a steep drop in January and a rebound in February, ICE looks ready to fall some more.

#-ad_banner-#On the charts, the most important feature now under attack is the rising trendline from December 2012. That was just after the NYSE Euronext merger was announced, and the stock found its ultimate low within a week’s time. It then embarked on a one-year rally taking it from roughly $123 to $229, which is no slouch in anyone’s book.  

The line was tested in January and did provide support. However, the bounce was short-lived as ICE failed to move back above its 50-day moving average. And now it is once again testing the trendline and even traded marginally below it Thursday.

Relative performance versus the market is clearly lagging. And momentum indicators have flattened out to tell us the power behind the rally is gone. Trading over the past two months was not just an ordinary pullback in a healthy trend.

Should the trendline, currently at $208, break, the potential decline could take the stock back down to the $175-$180 level, which is roughly a 50% retracement of last year’s rally. This is also where the stock broke out from a summertime trading range and last touched the rising trendline, so it is a compelling target.

Other reasons to expect lower prices ahead include the relative weakness in the entire financial sector, as mentioned above. This group is lagging, and ICE in turn is lagging the group. Recall the investor mantra of trying to buy the strongest stocks in the strongest groups. The converse works, too, and ICE is a weak stock in a weak group.

And should the market turn south, weak stocks are the first to get sold, and that would be a bonus for the bears.

Action to Take –>

— Sell ICE short at $206
— Set stop-loss at $220
— Set initial price target at $180 for a potential 13% gain in six weeks

This article originally appeared on ProfitableTrading.com:
Weak Stock in a Weak Sector Looks Destined for a Double-Digit Decline

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