BKX trade ideas
10:03 AM Banking Sector: Regional Banks Verses Large Banks:I have always believed that it is difficult for broad equity to do well if banks are struggling. Credit makes the economy go, and if banks are impaired, credit suffers. Historically, when bank credit contracts sharply, the economy slows.
Admittedly the relationship hasn't been as strong over the last twenty years as monetary and fiscal stimulus have made liquidity/credit abundant. Now, with the Fed removing liquidity and tightening and the yield curve in sharp inversion, I suspect the historical relationship is likely to reassert itself.
In this series we will take a general technical look at banks via relative strength ratios. In part 1 we look at ratios between banks and the broad equity market, large and small bans and take a quick look at the yield curve. In part 2 we will look at price charts of the too big to fail banks.
As a reminder: A falling ratio represents underperformance of the numerator security (top) relative to the denominator security (bottom). Conversely, a rising ratio represents overperformance of the numerator relative to the denominator.
Broadly speaking, over the last 25 years index level bank returns have been roughly flat (not including dividends).
Relative Strength Ratios:
BANK/SPX Monthly: Not surprisingly, banks have been trending lower relative to the SP500 since the early 2000s. The opportunity costs of index level bank investment have been significant.
KRE Regional Banks / KBE SP Bank Index: Monthly: Over the last few months the ratio of regional banks to larger banks has turned sharply lower and is now threatening a breach of substantive support. Weakness below the support in conjunction with the MACD sell signal would suggest a long-term strengthening of the money center banks relative to regional banks.
KRE (Regional Banks) / BKX (Large Banks): Monthly: This ratio looks very similar and adds confirmation to the weakness shown in the KRB/KRE ratio (I prefer to see multiple ratios confirming a view).
In order to provide a more specific look I summed the four largest (too big to fail) banks, divided the result by 4 and ratioed the result against the KRE regional bank ETF. In this ratio the systemically important banks are MUCH stronger than the regionals. Again the ratio is threatening to fall below a major support zone. The chart makes sense in relative to the events of the last two weeks.
It is interesting that regional banks have been weaker relative to larger banks since August of last year, long before the news of SVB, SIL, and SIG bank made headlines. The relative strength in large banks makes sense in that the systemically important banks control about 40% of group assets, are required to pass stress tests and are in general much safer in a chaotic environment. And, they have more tools to cope with an inverted yield curve.
Its not a coincidence that an industry that depends upon borrowing short (via deposits) and loaning or investing long began to underperform as the 3 month - 10-year yield curve neared inversion. Put simply, when short rates are higher than long rates, there is little or no carry and no incentive to lend. This somewhat exaggerates the problem as many deposits were still pegged at 0.50% or lower. But also realize that many longer-term loans and securities were locked with rates much lower and that mortgage duration has extended significantly as ten year rates moved higher.
Next week we will take a technical look at the big four banks and we will follow that with a more general discussion around banks and what the hell just happened.
And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum.
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Taylor Financial Communications
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
KBW Nasdaq Bank Index The KBW Nasdaq Bank Index ( BKX ) is a benchmark index that tracks the performance of leading US-based bank companies. The components of the BKX index as of my knowledge:
Bank of America
Bank of NY Mellon
Capital One Financial
Citigroup
Comerica
Commerce Bancshares
Cullen/Frost Bankers
Fifth Third
Huntington Bancshares
JPMorgan
KeyCorp
M&T Bank
Northern Trust
PNC Financial
Regions Financial
State Street
Truist Financial Corp
U.S. Bancorp
Wells Fargo&Co
Zions
Since price has lost the 94,94 key support the same level is now Resistance...
My chart shows 3 Scenarios:
1. The 'Good Scenario' shows dip of around 10% and rebound at 79-80$
2. The 'Most Likely Scenario' would be a test and rebound from 70,56$ (dual key support area around 25% lower)
3. The 'Bad Scenario' would be the revisit of 2008 crisis lows (early 2009 aftermath lows at 20 with 32 also offering a massive support level as well as potentially a huge opportunity for investors to buy in/or back in.
There is a doomsday 4th scenario for those who like to 'look for it'.
Will also post next a mini-chart on smaller timeframe.
One Love,
the FXPROFESSOR
KBW Nasdaq Bank Index - 3 Scenarios The KBW Nasdaq Bank Index (BKX) is a benchmark index that tracks the performance of leading US-based bank companies. The components of the BKX index as of my knowledge:
Bank of America
Bank of NY Mellon
Capital One Financial
Citigroup
Comerica
Commerce Bancshares
Cullen/Frost Bankers
Fifth Third
Huntington Bancshares
JPMorgan
KeyCorp
M&T Bank
Northern Trust
PNC Financial
Regions Financial
State Street
Truist Financial Corp
U.S. Bancorp
Wells Fargo&Co
Zions
Since price has lost the 94,94 key support the same level is now Resistance...
My chart shows 3 Scenarios:
1. The 'Good Scenario' shows dip of around 10% and rebound at 79-80$
2. The 'Most Likely Scenario' would be a test and rebound from 70,56$ (dual key support area around 25% lower)
3. The 'Bad Scenario' would be the revisit of 2008 crisis lows (early 2009 aftermath lows at 20 with 32 also offering a massive support level as well as potentially a huge opportunity for investors to buy in/or back in.
There is a doomsday 4th scenario for those who like to 'look for it'.
Will also post next a mini-chart on smaller timeframe:
One Love,
the FXPROFESSOR
BKX- Banks are strugglingBanks are raising the reserve lvl in anticipation of the rising loan default. Facing weaker loan demand, banks tightened standards across all categories of residential real estate (RRE) loans and across all three consumer loan categories. In addition, banks also tightened their standards and terms on commercial and industrial (C&I) loans to firms of all sizes.
BKX - Equities on a knife edgeHere's a chart of the Nasdaq Banking index showing that things could really be hanging in the balance at the moment. On the one hand this count suggests we may be in the final C wave of a long, flat correction that began back in 2007. On the other hand, if the said correction in fact completed back in 2009 then we could perhaps expect the bullish alternative and see a 5th wave continue upwards from here. Watching and waiting......
Chart of the Day 1/3: Avoid Banks, this time is differentAs we contemplate the convergence of long-term US rates with that of Europe and Japan as well as the Japanification of the global economy, it is useful think about the potential impact on banks. Yes, low rates are not good for banks and as we have seen in Japan, perpetual low rates does not equate to an increase in velocity of money. That chapter in financial textbooks need to be re-written.
This series of charts will look at the American, European and Japanese banks and this time it is REALLY different. Not in a good way. As you can see, banks are testing long-term post GFC support levels. The key difference is, the last few times the banks tested trend line support, the stocks were oversold. This time, as you can see, banks are overbought on a weekly basis testing long-term trend support.
Whether this is bank-specific or a prelude to the wider trend, the jury is still out. This much I will say, the Americans do not know what they do not know in relation to the Covid-19 situation in the US. For an economy which strength has been measured largely by increases in temporary employment, this is an interesting situation to be in.
Bank Stocks: Bullish breakout. Strong long-term Buy Opportunity.BKX (Nasdaq bank index) has just broken above the Lower High trend line (dashed lines) of the 1W bearish (pull back) leg within the greater pattern of the multi year Channel Up since 2012. The technicals have turned bullish on 1W (RSI = 59.797, MACD = 1.140, Highs/Lows = 5.1079) and even the RSI is on identical levels with the last time a similar break out took place in 2016.
We are expecting a fairly similar bullish break out on the long term towards 140.00 - 149.80 (Target Zone).
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KBW (US Bank Index) - 70% Countercyclical Short Trade? UhohHey traders,
I won't comment on this one and will just let the data and idea speak for itself. IF this happens its going to be a very painful period for many on the lower-bound of income generation who rely on credit creation to make ends meet. Please consider philanthropic endeavours from any capital made on this trade. Godspeed.
***This is not investment advice and is simply an educational analysis of the market and/or pair. By reading this post you acknowledge that you will use the information here at YOUR OWN RISK
US BANK INDEX - 15% Countercyclical Trade?The selloff has been fairly steep in this index as we now trading below the descending channel. We are very oversold here, so let's look for a re-entry back into the channel and see if we can hit channel resistance before we get another consolidating sell-off.
Here's the weekly snapshot:
We can see we are close to the EMA200 and will probably need to retest resistance before we break below it.
***This is not investment advice and is simply an educational analysis of the market and/or pair. By reading this post you acknowledge that you will use the information here at YOUR OWN RISK
BKX is showing signs to resolve hireI am not one to like the earnings reaction at all with the banks but there is signs prices are trying to move hire. Now we had an incredible earnings week, so this little up tick could be deceiving. I would of muck preferred a squeeze off support here. Since, we don't see that, very difficult to call a long. This is also a start for a new month. My market bias is still that we sell off. Watch Banks to lead to down side but under perform the up side.
Bearish Potential for BanksI use this index to monitor the U.S. banking sector
A solid break below 101.39 would suggest retest of 89.13.
Alternatively, we can also count pink wave 5 as 3, but looking at the Fibonacci relationships between each sub wave, i think this pink labeling is a high confident count.
some interesting facts:
wave 3 equals to approx 2.618 times the length of wave 1
wave 5 equals to approx 0.618 times the length from the start of wave 1 to the end of wave 3
wave 5 ended near the middle line of the uptrend channel
