Wednesday, July 22, 2009

Lagging Banks Potentially Bearish

Despite the rise in the S&P 500 on Tuesday the banks (BKX) fell over 3%. Historically when the banks have fallen sharply while the S&P has risen, it has often been followed by weakness in the S&P. Below is a study that exemplifies this.

(click table to enlarge)

Both the low winning percentages and the fact that losers were larger than winners suggest a downside edge over the next 1-5 days.


Daniel said...

A study like this is especially useful when taken in context. The Banks are of great importance always, as are the Semiconductors, as sensitive sectors which often lead broader indexes.

However there is a prevailing fundamental wisdom, which I believe is true: ..That since the banking and housing industries got us INTO this mess of an economy, no true and lasting economic recovery will take place without strong participation and even leadership from these very sectors, and no market blowout move will occur without the share-price appreciation of their key companies.

So while I always pay attention to Rob’s studies on the SOX, the broker-dealers, key Internet leaders, etc., as potential lead-indicators giving advance warning, in THIS fundamental environment unusual strength or weakness in the BKX or other banking indices is of double interest.


Anonymous said...

So does your thesis hold true for the last bear market, or others? If I remember correctlyo gold miners, not tech, was the leadership in 03.

The Other Daniel

Daniel said...

Response to O.Daniel:

It is not so much a thesis as an observation. On several recent swing moves the BKX moved noticeably in that direction first, providing lead time.

What is most ailing is often most closely watched, it kind of makes sense.