Bank Index at Resistance (Again)

With all of the cross currents in the marketplace today, keep your eye on the Bank Stock Index (BKX.x). The Marketdoc Report has been closely watching this index for several weeks now. This is only one of the few indices that has not challenged and exceeded its highs which were put in place in early 2009. I believe this is what has been weighing on the overall stock market to keep it from moving higher. Yes, there are signs of the economy slowing down. People are afraid of the so-called "double-dip" recession. Many are keeping their eyes on unemployment which is a LAGGING indicator.

But in a slowing economy this could be good for the banking sector as this means the Fed will keep interest rates low as a way to stimulate growth. One might argue that the recent raising of the discount rate was a negative for banks. Banks seldom use the discount window anymore to borrow funds. With the cost of capital still historically at fire sale prices, banks are free to borrow at low cost of capital and add a mark up to ensure they earn a profit.

From a technical stanpoint the BKX is showing signs of exhaustion before making a new yearly high. If we see this index break through resistance it could mean the overall market will EXPLODE to the upside. Keep watching.

Bank Index Ready to Challenge 2009 Highs

The chart above shows the banking index (BKX.x) as it is ready to challenge the established highs from 2009. This index is the ONLY one that has not exceeded its summer highs. A new high in the bank index will be a "green light" for this market to run even higher. Of course, the doom-and-gloomers are waiting for the bottom to fall out. There is a time and place to be cautious and defensive. There are alot of crosswinds right now but the upside bias continues. This market has shown much bouyancy despite the uncertainties which remain. While everyone is focused on unemployment (a lagging indicator) this market, especially the bank index is telegraphing signs it wants to run higher.

Note: The above is for information purposes only. Any decision to buy, sell, or hold a specific investment for your portfolio should be reviewed by your own investment advisor.