The strength of any chain is always defined by its weakest link. The financial sector is by far the weakest link within the stock market chain. The 2003, 2002 and 1998 lows on Bank stock Index (BKX) were broken on increased volume in 2008. This is known as a technical sign of strength. Support broken with force tends to become resistance. While the bank stocks have rallied with the stock market, they have lagged other sectors. Financials, the engine of the US paper machine, need to be the leaders.
The characteristics of a rising wedge, the light volume and converging price, are not difficult to notice as the BKX approaches 60.
While the state of affairs in US, as presented by the media, remains tilted toward denial of the dire financial (credit) and economic conditions, it does not suggest that the markets remain completely oblivious. Unfortunately, this bias, designed to "protect" the public, will only serve to hurt them again when reality breaks perception.
Bank Stocks (BKX):
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