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Coolhand's Market Analysis

Global Banks Under Pressure

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Economic growth on a global scale has been a big concern for traders and investors. It has been tepid at best and is causing downside pressure in most sectors and markets. Growth is what helps keep stock prices elevated and there is plenty of evidence that growth is weak.

The Baltic Dry Index, traditionally a leading indicator of world economic growth, is at all-time lows. But the index tracks the price of shipping, not volume, and so it may not be an accurate reflection of how much shipping is actually taking place. Still, it cannot be dismissed as a point of concern.

China's economy is one that is of particular significance. Recently, financier George Soros said at a dinner that a “hard landing is practically unavoidable,” adding that China is the root of the current financial crisis.

He is not alone is his assessment, but economics is both a moving and manipulated (even tortured) science.

Another area of the market that is under particular scrutiny is global banking. Banks are a central part of any country's lifeblood. If that sector is not healthy, the economy suffers. How much it suffers can vary greatly and depends on many factors. But I am not going to delve into those variables.

Instead, I am going to throw out some financial charts that may be telling us something.

Can you post the Wilshire 4500 completion index on your site?-dxjf-jpg

The first chart, shows the Wisdom Tree Japan Hedged Financials Fund. It shows that a bias lower began in mid-November and has recently begun to pick up downside momentum. It is now down about 38% since that November peak.

Can you post the Wilshire 4500 completion index on your site?-stoxx-jpg

In Europe, the STOXX600 is a major index for taking the pulse of the European banking sector. This is a weekly chart and shows a similar story, though the peak of this sector came in early 2015. Price closed well under the 200 dma last week and momentum is accelerating to the downside.

Can you post the Wilshire 4500 completion index on your site?-nabzy-jpg

Australian Banks are also under pressure. This chart shows that the Australian National Bank peaked back in late Summer of 2014. Price fell under the 200 dma in the Summer of 2015 and it has been seeking lower prices ever since.

Can you post the Wilshire 4500 completion index on your site?-bkx-jpg

The BKX is an important index that reflects the health of the U.S. banking sector. We have a peak in July of 2015; a lower peak in November 2015 followed by a hard decline to present. Last week's weekly candlestick shows a long tail. Support appears to be just above the 56 area. Whether or not support holds remains to be seen.

The first three charts are all from countries that make up the TSP "I" fund, which has been under pressure along with the "C" and "S" funds.

As many of you may be aware, the current market is being compared to 2008's financial collapse.

I do not know whether or not we will experience another similar collapse, but the evidence suggests that it should not be dismissed lightly.

Can you post the Wilshire 4500 completion index on your site?-spx1-jpg

Looking at a 20 year chart of the S&P 500, we can see 3 major peaks. The latest one is much higher than the previous two and shows just how far the market has come in a relatively short period of time. It now appears to be rolling over. In my opinion, global growth is too weak to seriously look for a soft landing. RSI shows us that it is nowhere near an oversold condition compared to the last two bottoms.

With the banking sectors across the globe showing signs of cracking, the potential downside of charts such as the S&P 500 suggest much lower prices are not only possible, but highly likely.

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Updated 02-15-2016 at 03:09 PM by coolhand

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Comments

  1. JTH's Avatar
    Great writing!
  2. coolhand's Avatar
    Quote Originally Posted by JTH
    Great writing!
    Hi Jason.

    Thanks! I wrote it while on a weekend getaway to St. Augustine, FL. Ever been there? It's the oldest city in the country (founded in 1565).

    Did the tourist thing and went to the oldest wax museum in the country and then the Pirate and Treasure Museum. I liked the Pirate Museum best. Our tour guide (Captain Mayhem) was exceptionally knowledgeable and dressed and talked in character. Loved it!

    I think I got the idea for my blog from that museum, actually. All that talk about pillaging and plunder made me think about central banks.
  3. DreamboatAnnie's Avatar
    Hi Coolhand, Thank You for posting this highly valuable information. I also believe a large drop is becoming more likely and would not rule out something worse than 2008. I didnt know which charts track financial sectors in the international markets so your post advanced my learning. Thanks again!!

SPY (C Fund) (delayed)

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DWCPF (S Fund) (delayed)

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EFA (I Fund) (delayed)

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BND (F Fund) (delayed)

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