Transcendental Market Truths:
Bank Index:
The index that's showing strength here is an unlikely one - the Bank Sector Index BKX. According to its volume oscillator, a bullish divergence is setting up in the index which could propel the index higher in the near term going into the mid-May top.
Clearly, if the market is to continue going down, the banks need to lead the way. Since they're showing strength instead, it's just one more sign that the market hasn't seen the final top yet (and may not see a final top until late August for that matter. If the Bank Index does rally here, it won't last very long. In fact, in only a little more than a week the BKX will likely top out on any short term rally that might have gotten its start on Wednesday morning's low.
This buying of American banks could have a fundamental reason that's not really that bullish. With depositors in European banks nervous about the safety and soundness of their deposits, they may be selling Euros, buying Dollars and depositing them in US bank checking accounts simply for the safety and security (FDIC Insurance) offered by the US Government. Or, it may simply be the fact that US banks essentially own the government and will come out smelling like roses should there be another leg down in the Global Financial Crisis.
As long as the dollar is the world's safest refuge from financial calamity (don't believe that Gold is right now), US banks will benefit. Yes, that will probably change at some point which could be years away. For right now, the safest place to park money is in US Dollars in US banks.
A quick glance at the Euro chart just shows how terrifying it must be to be holding deposits in Euros, especially in Greece, Spain, Italy, Iceland, Ireland and Portugal right now.
The flip side of the coin is that holding short positions in the Euro (as I've been pounding the table about for several months of a nice, profitable trend) is pretty much the exact opposite emotion.
Look for the market to be caught between the rock and the hard place during most of the month as it sorts everything out. There's still a lot of greed stimulating buy-on-dippers, balanced by those who recognize an unsustainable trend. Hence, a trading range with an important sell point for stocks later in the month. |
