Opportunity in US banks

Recently, I wrote a commentary on the Canadian banking sector. My general comments were that the sector may have broken the neckline of a potential double-topping formation – and that we want to watch the sector for a neartermed bounce off of $27 (for the ZEB units). We did get that bounce. I also warned that it’s important to see a follow-through on the sector to prove it’s not a false bounce. If $27 can’t hold – CDN banks may in trouble.

 

The US banks have been hit as well. However, the formation that I see on the sector does not yet look like that of a typical top. It simply hit a peak, and fell. There was no “complex” action of a market that is struggling to find new highs like there is in a double top (as in the case of CDN banks) or a head & shoulders or rounded top type occurrence. The daily chart below shows a pretty clean peak, and then a decline to pretty much exactly the prior level of support, and a clean bounce from that level – so far. Further, there was no negative divergence on momentum indicators – as I noted there had been on the CDN bank stocks. My conclusion is that the technical profile for US banks, despite the clear selloff that occurred in tandem with the CDN banks, does not look like a topping formation.

US Banks $BIX S&P index: technical chart analysis of potential successful trade, RSI, Stochastics, MACD, moving averages

Seasonally, US banks should have more than a month of upside left in them—they can be strong well into May. Interestingly, the seasonal chart, courtesy equityclock, shows us a selloff can indeed occur in the late part of March. I’ve circled it on the chart below. Coincidence or not, the recent selloff occurred on schedule with the seasonal chart – and point has been a good spot to enter for a final thrust on that sector historically. The current technical profile on the daily chart lines up with this seasonal tendency. Momentum is hooking up from an oversold level. As noted above, that bounce occurred right at support.

US Banks: Industry Seasonality Chart

 

We are taking a short termed (1 – 2 month) trade on the sector via an ETF holding the US banks. There are many out there, so choose your favorite if you wish to take advantage of this potential opportunity.

 

Keith on BNN

 

I’ll be on MarketCall Tonight next Monday April 3rd for the 5:30pm show. Phone in with your questions on technical analysis for Keith during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions several days ahead of time (specify they are for Keith) to [email protected]

6 Comments

  • Hi Keith,
    Thanks for this very timely (for me) update. I wrote you after your analysis of Canadian banks a week or two ago to ask about the US banks and, at that time you, along with your fundamental guy, Greg, were 50-50 on the sector. From the current blog, I gather that the technical factors have now trumped the fundamentals–no pun intended.
    Anyway, I have now deployed some cash to this sector that I had raised from some Canadian banks, but not so much. I have very happily held RBC ( not buy and hold blindly- but in larger or reduced amounts) since the late 1980’s and I don’t like to “quarrel” too much with my winners!
    I look forward to seeing you on BNN in a few days.
    Cheers,
    Joe

    Reply
    • You may have seen that one of my BNN top picks was ZUB (US banks ETF)

      Reply
  • Kieth it would be great if future blogs that include charts also included a link to the chart that enable us viewers to see a larger version of the chart. It is hard to see the details in chart.

    Reply
  • I just saw your podium shot, as a fellow 55yr rider I can appreciate your efforts. Congrats!!

    Reply
    • Thanks Carey–fun race–highly recommend the race if you do that sort of thing–and if your happen to be in Florida in March!

      Reply

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