Before we finally emerge from the prolonged trading range environment of the last few weeks there are still a couple of major improvements needed. One of them needs to be made in the bank stock group. The PHLX Bank Index (BKX) made an attempt at confirming an immediate-term bottom earlier this week but failed.
An immediate-term bottom requires a 2-day higher close above the rising (or flattening) 15-day moving average. BKX confirmed an immediate-term downtrend in early April and has been down ever since. Most recently, BKX pulled back 1.56% on Wednesday and is testing its 3-month low around the 67.00 level….
Experience teaches that the healthiest broad market rallies occur when the bank stocks are either leading or else participating on the upside. A declining financial stock sector would qualify as a potentially dangerous divergence and would create somewhat of a headwind for the rest of the market.
[Excerpted from the 5/14/14 issue of Momentum Strategies Report]