From the Desk of Alfonso Depablos @Alfcharts
Banks are considered one of the world’s most important industry groups as they provide an excellent overview of the economic environment and overall risk appetite toward markets.
After suffering a deep decline in Q1, prices carved out a tradable low, rebounded, and settled into a well-defined trading range.
However, these laggards continue to be a concern for the financial sector and the broader market as the charts look vulnerable heading into earnings season.
Here we have Money-Center Banks $KBE, Regional Banks $KRE, and Community Banks $QABA, all of which are below their AVWAPS from the May lows:
These levels represent the price the average investor has paid since that day, making it a critical area of interest. In other words, the average buyer off the May lows is now in a loss position.
The fact that prices recently violated these AVWAPS tells us sellers are back in control of these trends.
We’re watching to see if we get a decisive reaction higher on the heels of the earnings season that kicks off tomorrow.
If we do, it would be considered a healthy sign for the overall market.
However, bulls don’t want to see this risk-on group flush lower and revisit the year-to-date lows. This would signal trouble for risk assets more broadly.
As always, we love to hear from you, so shoot us a note and let us know what you think.
Alfonso
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