The banking stocks are working. Here’s why. (March 18, 2016)
DJUSBK
Here’s a little chart video for you on the banking index ( INDEXDJX:DJUSBK), and this is why: It’s easy to say we should have bought right at the bottom, that’s true for just about everything that we didn’t. But the banking stocks are kind of starting to work. They’ve been working for a while, but the real challenge is that there is other stuff that has been working better. Well now with the Fed just kind of standing pat, but the market really looking to the future as being a greater risk to inflation, what’s happening is the yield curve is starting to steepen. We like a steep yield curve. Think about it this way, banks borrow short, they borrow by selling short-term bonds and then they lend long, meaning they sell you, not me, I do the shorter-term stuff. But they sell us 30 year mortgages, which of course then we close out in 3 years when we sell our house. But the bottom line is, they lend long. So it’s nice when the interest rates on longer-term loans tick up, because that’s how banks actually make their money. So a really good scenario would exist when short-term rates are really low, and long-term rates start to rise. And that’s really what you’re starting to see in the market; this is why investors are coming into the banks.
Here’s the deal, just for anybody that’s watching this: Look at Bank of America ( NYSE:BAC ), Wells Fargo ( NYSE:WFC ), JP Morgan ( NYSE:JPM ), Goldman Sachs ( NYSE:GS ), Morgan Stanley ( NYSE:MS ), even Citigroup ( NYSE:C . All of those are starting to look a lot like this, which is this, they’ve hit a low, you could almost draw an inverse head and shoulder pattern, in fact I won’t almost, I will do it, here. And then well do it however you want, I’m going to make this the head, this the right shoulder, and then we draw a line right across here. So we’ve got a low, a high, a lower low, a lower high, then finally a higher low and a higher high. So it’s been like a complete reversal of this. So once this breaks out, which it’s probably going to do next week, then you’ve got to start looking at the difference between this, 255.00 and 295.00, that’s 40 points. So you can really look for an upside price target of somewhere up there. That’s not a projection it’s just technical analysis applied. The bottom line is, I think these banking stocks are going higher. I’ve just kind of shown you the technical picture here. If you just pause the picture and look at this it looks like I dropped a bunch of stuff on a piece of graph paper. But the bottom line is, you want to be long these banks.
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