People Love Bank Stocks. Why Did They Wait So Long?
It's a story as old as Wall Street. But here's why we loved the banks when others didn't.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
We need to start with the Banks because all of a sudden everyone loves them. Why they didn’t love the banks last fall when they were down and out is anybody’s guess, but now that the Bank Index has rallied 50% since then (and ten percent in the last month), they are coming out of the woodwork.
I did like the Banks last fall. I liked that they did not make a lower low from the prior spring, thus forming a W, one of my favorite patterns. That double bottom (the W) measured to 110, where we are now.
Just as an aside we do the math by taking the top of the pattern (90) and subtracting the low (70) to get 20. Then we add 20 onto the breakout (90) to get 110. So why have I been using 115 as my target?
Because that was the old highs from 2022 and early 2023, before the Silicon Valley Bank collapse. Also because that last swing down from 107 to 100 (blue lines) gives us seven points and seven added on to 107 gives us 114. It really is just the math!
So why must we discuss the banks now? Because the love is getting pervasive at the same time we are four points from the target. They haven’t done anything wrong yet but taking some profits up there would be a good idea.
Aside from that, I still view the action we saw the last two days as part of the unwinding of what we had seen the prior two months. We are still short term overbought. You can see the Oscillator made no progress during Monday’s session. I think it gets another push up on Tuesday though (it’s the math!). We are still not yet intermediate term overbought though.
Now, the number of stocks making new highs on the NYSE did not expand on Monday. I think that is the short term overboughtness. In addition the upside volume was a mere 55% of the total volume—again that’s probably the short term overboughtness expressing itself.
Keep in mind I am still focused on interest rates. I am still watching this line on the yield of the Ten Year. My sense is it breaks at some point but when given the chance in the last week, it has done a lot more milling around than it has decisively breaking. The curious thing to me is that we keep hearing about the weakening economy and better inflation prints yet interest rates were one full point lower in the spring of 2023.
I am no rate expert—I just draw lines on charts—but with the chatter all ‘lower rates coming’ all the time, stocks seem to be anticipating something bonds are not.
