BKX trade ideas
BKX Bank Index Break Out Today: Expect More Gains For FinancialsMarket Consenus View: The "Trump"-Bankrally is overdone and there might be no more potential to the upside.
Today the BKX is telling a diffrent story. There might be more potential to the upside, unexpectedly
So watch this index also closely like NASDAQ Comp., SPX, Dow Transportation, the DJIA and the majority of all European Stockmarkets. All Indices showing right now similar break out patterns wich might set another larger move to the upside, unexpectedly for most traders again and once more. Even retail traders or Pro´s.
Financials will benefit if the reflation theme continuesRelated to the reflation theme described in my view "Crude Oil: The Most Important Chart in the World".
This trade relates to a steepening of the US yield curve as rates adjust upwards through either rising inflation or a pickup in US growth (or both) having been driven to a record low in June.
BKX Index (candles)
BKX / SPX (blue)
US10Y (grey)
What is interesting to note from a technical perspective is that the BKX index traded within 1% of the 2007 - 2009 61.8% retracement level last July, before bottoming at the 38.2% retracement level in February this year. Since then, yields have continued to fall (grey), but the relative performance of banks versus the S&P 500 (blue) has held firmer and failed to make new lows.
Assuming the reflation theme transpires, banks represent a compelling value play and remain an uncrowded US equity play. Now trading below the $70 level, technically the banks are in the lower half of the last 12 month's trading range and provide a decent payoff in the run up to $80 (61.8% level) with a stop-on-close (weekly) below $57 (38.2%).
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The only chart you should look atI am a big believer that markets are patterned in term of price and time. I use Elliott waves but I don't label everything. Waste of time as the probability of being right are low most of the time.
That being said, I do look for charts sporting the right look. In other words, high probability wave counts and right now if there's one chart flashing a very compelling story is the Financial index BKX.
If we look at the big picture, the decline from the 2007 high to the 2009 low is one wave. Either wave 1 or A. That was followed by a three waves up that stalled at the 61.8% retracement. That combine with the fact that It is a three waves affair meaning a corrective rally that is either wave 2 or B bolster our confidence that the Financials have started another round of selling.
Thus from the 2007 high they are either in a major bear markets with Armageddon getting closer ( at least for the Financials in a year or two ) or it is part of a large ZigZag that will bring the index below its 2009 low before climbing back up. A smaller Armageddon. But it can also be parts of a very large bullish triangle ( and Goldman Sachs sure looks like a bullish triangle, charts to come)
And here we are, can be this can be that.
But why bother ? it is useless trying to forecast markets that far ahead unless you are a very long term investor and in that case one would be bearish financials against the 2007 high. Actually right now one could be bearish against the 2015 high because even if it is a bullish triangle Financial can still decline for a while in wave C down. A very nice decline to catch...or avoid.
Now let's look at the short term picture. From the 2015 high we do have very clear waves and because the index rolled over at the 61.8% retracement AND the February low as penetrated the 2010 high, we are labeling current price action as only part of the first wave down that is not complete yet. We need sideways ( wave (4) ) then down in wave (5) to finish that pattern.
Once wave (5) is over then a longer and larger corrective rally should be the next move of consequence that CANNOT exceed last year high.
I am quite excited with that index. Very clear and quite compelling but let's be rational here, moving strongly above 66 would weaken my stance and above 73 we have something else. Stay tuned, I will update the chart as action warrants it.
