Keefe Bruyette & Woods U.S. Bank Index (BKX)

Can The KBW Bank Index Lift Above Key Resistance?

Posted in Keefe Bruyette & Woods U.S. Bank Index (BKX) on August 23rd, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Amid rising interest rates, the Keefe, Bruyette & Woods U.S. Bank Index (BKX) is now testing key trend line resistance at 67.11 on long-term charts. Another technical factor to consider is that overbought conditions are now present on long-term charts as well. At the very least, this set-up suggests that either a pause or a correction may unfold over the short-to-intermediate term in bank stocks.

Clearly, the prospect for the much-anticipated taper has given investors reason for pause. Adding to the likelihood that a more defensive posture in equities (in general) is  developing, is recent evidence of a slowdown in retail sales, despite a modestly improving employment picture. The criticism of recent job additions, however, is that they have been largely part-timers at relatively low wages. The July BLS report revealed that the biggest jump in job gains last month was in the category of those who are 25 years and older who had less than high school diploma. Further, the BLS also reported that average working hours declined in the private sector from 35.5 hours to 35.4 hours with average overtime hours declining to 3.2 hours from 3.4 hours in June.

These numbers poke a hole in the theory that a jump in the number of part time workers is a prelude to future full time job gains and that existing workers will generally garner an increase in overtime hours before employers make additional hiring plans. Adding to this murky mix was a decline in average weekly earnings from $678.72 in June to $676.70 in July.

Along with the clear retrenchment in retail sales (along with future guidance), this set of statistics may be just enough to put the taper talk on the back burner for a while or until evidence of a more sustainable jobs picture reemerges.

While the continuation of QE at the $85B level could be helpful to lift overall economic conditions in future months, the BKX bank stock index might respond better to an increase in higher quality employment gains along with credible evidence of an increase in economic activity. In any event, keep on eye on the 67.11 level on Keefe, Bruyette & Woods U.S. Bank Index (BKX). It will likely be a key inflection point that will signal the direction of bank stocks.


KBW Bank Index Breaks Above Key Resistance

Posted in Keefe Bruyette & Woods U.S. Bank Index (BKX) on May 29th, 2013 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Despite overbought conditions on long-term monthly charts, the Keefe, Bruyette & Woods U.S. Bank Index (BKX) broke solidly above key trend line resistance at 57.60 and appears to be in position to extend a lot higher.

No doubt, hints from Fed Chairman Ben Bernanke that the Fed could pare back on its monthly treasury and MBS purchases (which now total $85B monthly) in coming sessions (if economic conditions warrant it) caused the treasury yield curve to steepen with treasury 10-year notes closing Friday’s session above the 2% level.

The economic conditions required to cause such a paring back of Fed purchases would clearly have to be reasonably good for FMOC to consider it. Such a premise combined with a steeper yield curve would clearly be welcomed news for banks and bank stock holders alike since in theory, greater lending margins would likely increase bottom line profits.

Moreover, a steeper yield curve would also encourage banks to make more loans which, in turn, would likely lead to an increase in domestic GDP, employment and economic activity in general. That being said, the ironic twist to this rosy economic outlook is that it could cause investors to reduce equity purchases for fear of a limited quantitative easing (QE) participation going forward.

While this irony could result in a period of investor retrenchment, it is interesting to note that the Dow Jones Industrial Average and the Dow Jones Transportation Index are both approaching long-term trend line resistance levels at 15,840 and 6,590 respectively with the Dow Jones Utility Index already having pulled back from a test of its key resistance at 537.

Although this scenario does fall into the “sell on good news” category over the short-to-intermediate horizon, it does remain positive for both the economy and investors alike longer-term. In addition, it also suggests that bank stocks should begin to “outperform” as a market sector in coming months.