FSTBM2024 trade ideas
Chart of the Day 2/3: Avoid Banks, this time is differentAs we contemplate the convergence of long-term US rates with that of Europe and Japan as well as the Japanification of the global economy, it is useful think about the potential impact on banks. Yes, low rates are not good for banks and as we have seen in Japan, perpetual low rates does not equate to an increase in velocity of money. That chapter in financial textbooks need to be re-written.
This series of charts will look at the American, European and Japanese banks and this time it is REALLY different. Not in a good way. As you can see, banks are testing long-term post GFC support levels. The key difference is, the last few times the banks tested trend line support, the stocks were oversold. This time, as you can see, banks are overbought on a weekly basis testing long-term trend support.
Whether this is bank-specific or a prelude to the wider trend, the jury is still out. This much I will say, the Americans do not know what they do not know in relation to the Covid-19 situation in the US. For an economy which strength has been measured largely by increases in temporary employment, this is an interesting situation to be in.
Bullish Euro Banks?European banks have taken a hammering since the beginning of the year but can I see 5 waves down there to bring the correction to a halt or at least give us a decent rally? Probably too early to say and I would need to see something more positive first but to me it certainly bears watching. Some decent divergence on the RSI as well. I have tried to show two possible counts for the correction with a double zig zag shown in the red while a completed 5 wave A wave is shown in the purple. The one would lead to a B wave rally with further declines to come while the other could possibly begin wave iii. So many divergences in global indexes right now it's hard for me to know what's going on.
