Are we looking at another banking collapse? One thing is certain, a large client somewhere has blown up.
Banks Worrying People…Again
May 3 (King World News) – Jason Goepfert at SentimenTrader: The worrying trend in financials…
Key points:
- Fewer than 5% of Financials are trading above their 50-day averages
- Fewer than 40% are holding above their 200-day averages, a worrying decline in long-term trends
- Similar combinations have preceded poor returns in the sector and the broader market
A vital sector is seeing souring trends
For anyone other than the most current generation of investors, trouble in Financial sector stocks sends a shiver down the spine. The meltdown in 2008 leaves the kind of scar that never fully heals. It seems hard for U.S. citizens to imagine now, but there was a daily worry about whether we would even be able to withdraw our own funds from banks the next day…
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For investors in these stocks, the past few weeks have not been fun. It’s hard to find a Financial that’s even trading above its 50-day average. The percentage of stocks in the sector trading above their 50-day moving average just fell below 5% after diverging from index prices for much of the past year.
Long-term trends are poor
During healthy markets, the percentage of stocks in an index or sector that are trading above their long-term 200-day moving averages tends to stay above 60%. Dips below 40% tend to bring in buyers almost immediately.
During unhealthy markets, we usually see the opposite – fewer than 40% of stocks tend to hover above their averages, and rallies above 60% tend to bring in sellers. For Financials, that’s what we’ve been seeing, with the percentage of members above their 200-day average falling below 40%. The recent spike above 60% was sold immediately.
When we look at the signals above but filter it to include only those dates when fewer than 40% of Financials were holding above their 200-day average at the time, returns deteriorated further. It gets more difficult to rely on the precedents as the sample size gets smaller, but over the next two to three months, most of the returns were negative. The sector avoided a negative return over that time frame only three times.
Again, this behavior tended to drag on the broader market, and returns in the S&P were mostly below random.
What the research tells us…
Equity investors do not want to see trouble in Financials. Traders tend to sell these stocks and ask questions later because a single over-leveraged client can bring down an entire institution. With coincident and severe declines among a broad array of stocks and bonds, there is almost assuredly a large client somewhere that has blown up or is about to. With investors avoiding stocks in this sector to the degree that they are now, it’s a worrying sign for all of us. This is another example of why Jason Goepfert is the best in the world at what he does – providing actionable market data. To subscribe to the internationally acclaimed work Goepfert produces at SentimenTrader CLICK HERE.
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ALSO RELEASED: Greyerz – Global Chaos Will Increase As The World Is Now Standing On The Edge Of A Precipice CLICK HERE.
MUST LISTEN: Egon von Greyerz’s Partner Matthew Piepenburg gave an absolutely incredible interview about the coming chaos investors should expect to see in terms of inflation and major markets as well as gold, silver, and what people will need to do in order to protect themselves from the coming upheaval in global markets. I would encourage everyone around the world to listen to this remarkable interview by CLICKING HERE OR ON THE IMAGE BELOW.
To listen to Alasdair Macleod discuss Russia backing the ruble with gold and why the price of gold’s rise will be unstoppable CLICK HERE OR ON THE IMAGE BELOW.
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