Friday, June 26, 2020

It Is Hard To Have A Bull Market Without The Banks Participating (BKX; XLF)

Following up on June 15's "Charting the Bank Index (BKX)" which we intro'd with:
Doing some emerging or frontier market investing drives home the fact that it is very difficult to have a bull market without the banks participating if not leading.* In developed markets (except Germany - banks very important to German equities) the importance is less obvious, more of a background reality but still there....
Ask the German bankers about Wirecard, as an example.
Here's the latest from Kimble Charting Solutions, who in the above post was watching for a potential bank stock breakout while aware of the potential fake-out:
Are Banks going to end the month with a large bearish pattern just below dual resistance? Possible, yet the month is far from over!...  
June 26
Banks Could Be Sending An Ominous Warning to Investors, Says Joe Friday
When the economy is humming along, the stock market tends to out-perform. And one sign of a strong economy is a healthy banking sector.

On the flip side, when the economy is struggling, the banking sector lags. And this is a drag on the broader stock market.

Today’s chart has Joe Friday concerned that the latter scenario may be playing out… and another bear market may be lurking.

As you can see, the Bank Index to S&P 500 ratio has been an important indicator for stocks. In both 2000 and 2007, bank stocks underperformed for nearly 2 years before taking the broader stock market lower. This divergence can be seen at each point (1) on today’s chart.
Note that each of these divergences eventually lead to a major bear market....

In between the two posts he also had, June 18: "Banks About To Get Fried? Possible If This Gives Way!".
Today, following the bank stress test results and the dividend/buyback directives the BKX is down 6.11% while the less focused XLF financial ETF is down 3.81% vs. the S&P's decline of 1.59%.