#$kbe

Here are some of the most noteworthy trendline developments across the markets for Wednesday, September 18, 2019.

CRB Commodity Index $CRB Testing Post-2014 Down Trendline

KBW Bank Index $BKX Testing Post-2018 Down Trendline

iShares High Yield Bond ETF $HYG Testing Post-2007 Down Trendline

Russell 3000 Value:Growth Ratio Testing Post-2017 Down Trendline

Dow Jones Transportation Average $DJT Testing Post-2018 Down Trendline

If you’d like to see these charts as they come out in real-time, follow us on Twitter and StockTwits. And if you’re interested in the daily “all-access” version of all our charts and research, please check out our site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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Many of you know that I have taken a strong interest in FinTech over the last 2 years, and I am teaching classes in the subject with the help of many friends. From this I am seeing first hand how the Banking and Finance space is being forced to evolve and innovate, as well as the false attempts by incumbents to deflect the disruptors.

Despite this wave though, banks are still banks, making loans and providing the grease to the economy. And the chart of the Banking ETF, $KBE, has been showing some life. Shown below it rose with the market off of a December bottom, but had stalled in February and pulled back. The pullback stopped at the October low, a reminder that an Inverse Head and Shoulders pattern could be setting up.

We are unlocking this member post in real time as an example of the type of charts posts we share in identifying potential entry/exit points in specific markets and tickers.

Bank stocks are testing a potential key support level.

Back in late October — the last time the market was melting down — we issued a post to TLS members identifying a level in a key sector that may just be compelling enough to stop the bleeding in the market. Titled “Finally Some Support To Bank On?“, it targeted a potential support level in, you guessed it, the bank sector. Specifically, it was focused on the KBW Bank Index (BKX) and the potential support near the 93.50 level in the form of:

The 23.6% Fibonacci Retracement of the 2009-2018 Rally

The 38.2% Fibonacci Retracement of the 2016-2018 Rally

Here is the chart from the October 25 post:

The index would indeed find support at that level, holding the low of 93.65 set on October 24 — at least temporarily. We closed out the post by providing our likely key resistance above and next support below that 93.50 level.

For reference, the upside support level had been 102.60 and, if 93.50 is broken, the next major level to watch is 79.20.

A multi-week bounce in the BKX would initially hit near the resistance target at 102.59 on November 9 before making an ultimate intraday peak at 103.14 on December 3. Then the next meltdown would ensue. In a matter of days, the 93.50 level would be broken and the onslaught toward 79.20-79.40 would be on.

Yesterday, the BKX would nearly complete the 15% decline from 93.50 to 79.20. The index hit as low as 79.85 yesterday before bouncing some 6% in an intraday rally for the ages.

As the chart shows, the next Retracement levels in the Fibonacci sequence line up near 79.30, including:

The 38.2% Fibonacci Retracement of the 2009-2018 Rally

The 61.8% Fibonacci Retracement of the 2016-2018 Rally

So is this 79.30-ish level new support that investors can bank on? Well, in this market, it is difficult to bank on anything. However, like the upper level at 93.50, we would expect at least a temporary hold by the BKX in the vicinity of that level — not precluding further testing of the level, FYI. And given the sector’s importance, maybe it will contribute to a boost in the overall market.

As for new upside and downside “targets”, the best levels of resistance above are now ~88.50 then ~93.50 — and support below ~68 and ~56.

If you are interested in an “all-access” pass to our research and investment moves, we invite you to further check out The Lyons Share. FYI, we are currently holding our HOLIDAY SALE, offering big savings for new members. So considering the discounted cost and the current treacherous market climate, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!

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The following post originally appeared on The Lyons Share on December 11, 2018.

Highlighting even more important trendline tests currently underway across the financial markets, a development which suggests this is a key juncture.

Last week, we took the occasion to publish the set of charts from our weekly #TrendlineWednesday  Twitter feature in a blog post. The reason being — the present number and importance of major trendline tests throughout the financial markets suggested that a key juncture in the markets may be at hand. After a week of chopping around (albeit, in a very volatile fashion), most of those key trendline tests are still in play. Furthermore, there are numerous other key trendlines being tested at the moment that either emerged this week or which we didn’t get a chance to share last week. So, we’ll share them now.

First off is our pick for trendline of the week from one of the most heavily watched sectors in the U.S. market. Namely, it is the KBW Bank Index (BKX), which is testing its post-2009 Up trendline.

As we mentioned last week, it’s not just the domestic trendlines being tested right now. Many international markets are undergoing key trendline tests of their own. Not the least of these is the MSCI ACWI ex-US Index, which is testing an intersection of 2 major, longer-term trendlines — the post-2009 Up trendline and the broken post-2007 Down trendline.

Numerous individual country markets are also testing key trendlines as well, including the Australian ASX-200 which is testing its post-2009 Up trendline.

Also testing its post-2009 Up trendline is the Indian Nifty 50 Index.

And reaching back further, Spain’s benchmark IBEX-35 Composite is testing a multi-decade Up trendline, stemming back to 1992.

It’s not just equities either. The bond market is also exhibiting some interesting trendline action at the moment. Last week, we looked at the bond yields testing uptrend support. This week, we look at bond prices testing downtrend resistance. Specifically, the popular iShares 20+ Year Treasury Bond ETF (TLT) is testing its post-2016 Down trendline.

Like we suggested last week, “the message behind all of these important tests is that this is likely a critical juncture in the market. If, in the case of the stock indices, the tests are successful, a solid rally may finally take hold after the recent correction. If not, it could be a long way down.”

If you are interested in an “all-access” pass to our research and investment moves, we invite you to further check out The Lyons Share. FYI, we are currently holding our HOLIDAY SALE offering big savings for new members. So considering the discounted cost and the current treacherous market climate, there has never been a better time to reap the benefits of our risk-managed approach. Thanks for reading!

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After a choppy week, key bull market trendlines are still being tested in many stock indices.

A week ago, we dedicated a blog post to the trendline developments that we posted in our weekly #TrendlineWednesday feature on Twitter. The reason for the unusual post was because of the prolific number of key trendlines being tested at the time in a wide array of indices and stocks. Well, after a volatile week that basically saw the market make little headway, up or down, there has been scant resolution among these trendline tests. Therefore, our #TrendlineWednesday feature is just as prolific as last week’s.

Here are this week’s relevant trendlines that we highlighted (among many other worthy candidates):

Will these trendlines continue to hold? Only time will tell. In our experience, the more times a trendline is tested, and the more frequently it is tested, the more likely it is to break. However, the proof is in the prices and until proven otherwise, it’s all bend but no break at this point.

If you’re interested in the “all-access” version of our charts and research, please check out our new site, The Lyons Share. You can follow our investment process and posture every day — including insights into what we’re looking to buy and sell and when. Thanks for reading!

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This post first appeared at TheFelderReport.com.

One of the hottest ‘Trump triumph trades’ late last year was the financial sector. Banks stocks soared in the immediate aftermath of the election leaving some to question why they were so strong.

Typically, the banks relative performance to the S&P 500 is highly correlated to the yield curve and this makes sense. When the yield curve is steep, banks can earn greater net interest margins (by borrowing short and lending long) and vice versa.

However, the yield curve has flattened dramatically so far this year and bank stocks have failed to give back their post-election rally. This leaves me to conclude they are pricing in something other than rising net interest margins.

It seems investors are hopeful that the Trump administration will remove much if not all of the financial regulations put in place after the financial crisis. In fact, this is one issue House Republicans have actually been able to get behind (even if their colleagues in the senate haven’t… yet).

In response, Stanley Fischer, Vice Chairman of the Fed’s board of governors, recently came out with a strong warning against this trend calling it, “very, very dangerous and extremely short-sighted.”

I know it’s been a decade now since the financial crisis began but for those who don’t remember it there are just two chart you need to see to understand both the dangers of banking deregulation and its stubborn persistence.

First, it’s very clear that when appropriate regulations are in place, financial stability is both vibrant and enduring. When they are removed financial stability rapidly erodes and we get a crisis or even a series of crises.

So it would seem very obvious that financial regulation is a good thing, even a necessary thing, for the health of the economy. Still, what’s best for Main Street is not what is most profitable for Wall Street. In fact, there is a very tight correlation between deregulation and Wall Street profits and this is precisely why financial deregulation rises from the dead time and time again.

Ultimately, Wall Street bears the cost of economic stability and Main Street bears the cost of financial crisis. Wall Street thus counts on Main Street’s short-sightedness in order to fatten their wallets at everyone else’s expense. And this is exactly what the bank stocks are pricing in today.

It’s no secret that financials have been badly lagging of late; but is it as much of a red flag as many have been suggesting?

At any given juncture in the stock market, there are a number of conditions that folks can point to as potential warning signs for the market. Certainly those with bearish inclinations will seize upon such conditions to explain (or promote) their view. One such warning currently being trumpeted relates to the recent under-performance of banks and financial stocks. Even bulls would have to acknowledge the reality of this under-performance, which, in fact, recently reached an ignominious milestone.

Specifically, while the S&P 500 scored a new all-time high on Friday, the KBW Bank Index (BKX) closed more than 10% away from its 52-week high. According to our research, it was just the 9th such (unique) divergence since the inception of the BKX in 1992.

So, there is little doubt that financial stocks are indeed lagging the market at the moment. However, is it clear that this is condition is truly a red flag for this bull market?

We can see from the chart that a few of the historical occurrences (e.g., 1999-2000, 2011) took place in close proximity to market tops of some magnitude. We know that the outstanding market research firm, Ned Davis Research, claims that financials are notoriously one of the weakest sectors leading up to significant market tops.

However, we would also argue that far too seldom do folks actually crunch the historical data to determine whether or not various conditions actually warrant the “warning label” (assuming historical patterns have any implications for present or future market behavior.) Thus, while bulls would certainly prefer to see financial stocks hitting new highs along with the major averages, we would caution against assuming this divergence is an automatic death knell for the rally -- at least without doing the necessary research.

In a premium post at The Lyons Share, we undertake such research, looking at the historically similar divergences and conditions surrounding them in an effort to discern a realistic level of warning that one should assume here.

If you want this “all-access” version of our charts and research, we invite you to check out our new service, The Lyons Share.

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Banks come in all shapes and sizes. The one above is certainly one of the more unusual one's though. Through my career I have worked for a few banks. And I can say that they also have all sorts of shapes and sizes of offices within the same bank. Take JP Morgan for example. When I first started there (it was Chase Manhattan then) I worked 4 floors underground at 1 Chase Plaza, later on the 14th floor on Park Avenue and 51st, then back to the 3rd floor of the basement before I left. They can show you whatever they want to show you.

That goes for bank earnings as well. And today they shine for the most part with JP Morgan, Citigroup and Wells Fargo posting better than expected EPS. Like I said, they can show you whatever they want to show you. So when I look at the banks I look at the reaction, the sentiment, all contained in the price action to tell me what is happening. A broader look at that comes from the S&P Bank ETF ($KBE). The chart below tells a story, without the noise and glossy facade of a nice earnings report.

The chart above shows the ETF from its all-time high in early 2007 until today on a weekly basis. Yes, there is an index that has not made a new all-time high. After a bounce at the bottom of the financial crisis in 2009 to a short term peak in 2010 at a 38.2% retracement of the fall, it floundered for several years. When the 200 week SMA finally came to meet the price, it started higher in August 2012, pushing to a new high and stalling at the 50% retracement of the fall. From mid 2013 until the election last fall it basically moved sideways in consolidation. That is a long consolidation.

It jumped after the election racing higher to a top at the end of February. A Shooting Star candlestick was a portend for a reversal and it has delivered that reversal since, falling back to the 61.8% retracement of the big drop. That pullback did a good job of resetting momentum indicators lower. The RSI fell from being overbought to now at the mid line near the edge of the bullish zone. And the MACD has also crossed down and moved lower. It is nearly back to its 200 day (40 week) SMA and at a crossroads.

Technically, this would be a great place for the ETF to bounce, and with strong earnings reports that could be the course. But a retracement back the prior consolidation zone would also keep the longer view bullish. A cross down through that 50% level would turn the tide to bearish for the banks. Which path will it take? I do not know. Prepare for all 3.