Beware of the banks. Buying them right here looks dangerous.
Bank stocks had a wonderful 2017. The KBW Bank Index ($BKX) gained 16% last year – with much of that gain coming in the past six weeks. As a result, it seems that just about everyone has turned bullish on the sector.
And why not? 2018 should be a great year for bank profits.
The market expects the Fed to raise interest rates a few times this year. Rising rates are good for banks. Plus, the lower corporate tax rates should provide big windfall profits.
So, it seems almost like a “no-brainer” to be bullish on banks for 2018.
But, in the short term, the sector looks vulnerable to a quick decline. Take a look at this chart of $BKX…
The current action on the chart looks quite similar to the action last October – just before $BKX broke down and dropped 4% in about one week.
Last October, despite extending far above its 50-day moving average (MA), $BKX continued to make new highs. The new highs on the index, however, were not confirmed by the action in technical indicators like the MACD and RSI – which moved lower last October.
This “negative divergence” was a warning that the momentum behind the rally in $BKX was fading, and that the sector was vulnerable to a quick decline.
As you can see in the chart above, that decline played out in early November.
Now look at the chart action in December. Once again, despite being quite extended above its 50-day MA, $BKX has been hitting new highs. Those highs, though, are not confirmed by similar action in the MACD and RSI indicators – which are showing negative divergence.
This is a warning sign.
If the sector behaves as it did in November, then $BKX may be on the verge of a quick decline down towards its 50-day MA at about $103.
That’s about a 4% loss from Friday’s closing price.
So, if you’re thinking about buying into the banking sector for big gains in 2018… be patient. You may get a much better entry price a couple of weeks from now.
Best regards and good trading,
P.S. In my Delta Report trading service, we make contrarian trades against the market’s darling of the week… often racking up triple-digit gains while stock chasers lose their heads.
And it’s all thanks to my trading system, which I developed back in 2000 near the peak of the dot-com bubble.
To learn more about this trading system… and how you can profit off the market conditions I write about each day in the Market Minute… click here.
First in our mailbag for today – before your continued feedback about our holiday series – a note from a happy subscriber…
Hi Jeff, I just wanted to send a note to say I really appreciate your work.
I have been following you since the Stansberry days and wanted very much to thank you for the free subscription when you moved to the Delta Report. Unfortunately with such a small portfolio I cannot afford the renewal so I will have to go when it expires in February. Although I was not able to trade a lot of your recommendations I sure enjoy reading your work.
I have tremendous respect for you, your market insight, and your trading philosophy. Wishing you and your team a blessed 2018. Keep up the good work!
– Eric K.
Your readers’ letters contain some interesting points. Regarding the Disney pricing, I love it that those who can afford to pay in dollars to get to the head of the line, allow those who can’t afford the higher price to pay in time, instead, without the need to raise ticket prices across the board. Thus, everyone has the option to decide which thing is of more value to them: time or money.
Those who can’t get in at all will just have to take more time to save up. Those who pay the higher prices are subsidizing and amortizing the costs of providing Tomorrowland to others at a lower cost or in the future. Insisting that everything be the same cost to everyone (in time or money) means a higher entry price, whether it’s Disneyland, Uber, or Net “Neutrality.”
Each of us is much better off to have options, and to decide for ourselves which way to pay works best for us: whether a longer line, going off-season, going off-“surge,” waiting for a page to load, or waiting to save up. More consumers benefit if there are options. And then, there’s risk: buy a Tesla, be a beta-tester.
I have no problem with “rich people” being guinea pigs. Early adopters provide a service to all of us (at their risk). One size does not fit all.
– Sandra K.
Great advice, Jeff Clark. April 2009 and you would tell your grandfather to get out of the market? March 2009 started the great bull market. What a stupid call!
– Mark E.
I am no fan of Social Secrutiy and have a plan to wind down the program, leading to its eventual elimination. I will never receive a Social Security check.
I am also a reader of this column, though I am not a trader. I “buy and hold,” making but two, maybe three buys or sells per year. Only this past year did I make a sale for the purpose of withdrawing the funds and spending them. All previous sales were due to hitting stop losses. The resulting funds were used to purchase other positions.
All this said I quibble with the math in this column. Or at least the way in which you apply it. The $744 per month represents 12% of a salary exceeding $107,000. Not many people were getting that kind of money 46 years ago, and if they were, not all of it was susceptible to FICA.
I understand your objections to the program but a more effective way could have been employed to make them. Stick to the principles rather than a math scenario that cannot be justified.
– Joseph T.
Yes, Jeff! My husband and I did that for the required 40 years and more, now living with no money to do much of anything and end up paying all toward monthly bills, and not quite enough.
Consequently we have to take more than we should from our IRA accounts to pay all off. The rub is, we were already projected to run out of funds before our end of life!
Welcome to retirement! Only getting worse.
– Cheryl R.
As always, feel free to send in your trading stories, questions, and suggestions right here.