Bank Stocks Appear Positioned To Extend Higher
Posted in Keefe Bruyette & Woods U.S. Bank Index (BKX) on February 27th, 2012 by admin – Be the first to commentBy Jim Donnelly, Olson Global Markets
Despite overbought conditions on the weekly time frame, the Keefe, Bruyette & Woods U.S. Bank Index (BKX) “nudged†above key downtrend resistance at the 43.90 level last week. Ironically, last week’s BKX rally moved in the face of Moody’s Investment Service’s warning that it might soon downgrade 17 of the world’s largest banks, including a number ofU.S.banks. To underscore their warning, Moody’s cited fragile funding conditions as well as rising regulatory headwinds as possible threats. That being said, their warning appeared to have little effect on bank share prices.
Although overbought conditions are present on weekly charts, longer-term monthly charts (which are far form being in an overbought condition) suggest that a lot more upside is in store for the BKX over time. Perhaps the announcement of a $26 Billion settlement with five big U.S.banks over the “robo†signing foreclosure ordeal removed a big “uncertainty†from the market. Perhaps a jump in U.S.commercial and industrial (C&I) loans at the expense of European banks has helped. Perhaps another drop in initial weekly jobless claims to 348,000, its lowest level in four years, helped as well.
In any event, last week’s “nudge†above the 43.90 level on the BKX, although modest, could be a hint that further gains in bank shares are coming. If so, the next key area to focus on is it’s “mid-channel†resistance currently sitting at 54.