Thursday, June 25, 2020
XLF Financial (Banks) ETF Daily Chart; Bank Stress Test Results Today; Upward-Sloping Channel
The banks are a central focus today with stress test results released this afternoon. Wow, who knows how that will work out? Pause for laughter. It will be the same-o stuff. All the banks will get a free pass but there will be one or two that receive a little slap on the wrist or fine that will not amount to anything substantive. This is how the crony capitalism game is played. Banks will rally on the news since the big worry is that they will have to keep more reserves on hand or perform other measures that hamper their operations or reduce their dividends. The banks that would be sold off are the ones that have to reduce the divvy; this is the major focus of the stress test circus.
The XLF ETF is a good bank proxy although it is actually a broader financial play which includes insurance companies. The large money-center banks are in the XLF and they have their fingers in all kinds of pies including investment divisions playing the market daily. The banks benefit from the rising yield curve.
The 2-10 spread is at 49 bips give or take. The US yields are; 2-year 0.18%, 5-year 0.32%, 10-year 0.666%, 30-year 1.41%. The 2-10 spread is subtracting the 10-year yield from the 2-year yield. 0.666% - 0.18% = 0.486%. Moving the decimal over two places is 48.6 basis points or 49 bips. As you see, 1 basis point is 0.01%. 100 basis points = 1.0%. The 2-10 spread inverted last year. This is where the 10-year yield falls below the shorter duration 2-year yield and the subtraction number turns negative. Inversions foreshadow recessions that usually begin 1 to 2 years later. The 3-month yield is at 0.13% currently and the 3-month to 10-year spread actually inverted first early last year. This spread is now at 54 bips (0.666% - 0.13% = 0.536%).
The rising yield curve is more important for the regional banks than the large investment banks such as JPM, GS and the other banksters that rely on multiple sources of income. The regional banks are mainly in the loan business so rising yield spreads is very desirable to increase profit margins. Bring up a chart of the KRE ETF and you can follow that one as well.
XLF is enjoying an upward-sloping channel with price dipping lower to perhaps check in at the lower rail for a touch. The rising yield curve buoys the banks. Everything rallied off the March bottom. The ADX pink box shows that the crash lower this year was a strong trend lower but the three-month rally is not considered a strong trend higher. The Aroon red line is in the basement at zero with nowhere to go but up which is bearish. Perhaps a negative cross is on tap.
The chart indicators are rolling over to the downside which should create soggy price action but all bets are off until the rigged stress test results are released this afternoon. The 50-day MA support at 22.79 is holding, so far, watch that closely today. The lower band and lower channel line are in play forming a confluence of support at 21.90-22.24. If this fails, it is all over for the banks and the crying will begin.
Keybot the Quant is short the market currently with the weak banks contributing to the sogginess in equities yesterday. The quant is tracking XLF 23.36 as the bull-bear line in the sand. After the test results, and especially in tomorrow's trading, if XLF loses the 22 level, it is lights out. Banks will stagger sideways in a choppy indeterminate pattern if XLF remains above 22 and below 23.36. If XLF takes out 23.36 to the upside, the bulls win and banks and the stock market will be rallying joyously higher.
The bank stress tests are a rigged phony game so they will all pass, however, watch the price action on XLF. If banks rally but the XLF comes up and stalls at 23.36, that tells you that the banks and stock market are about to be smacked hard. Keystone does not hold any positions in the banks or their ETF's currently long or short. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note Added Friday Morning, 6/26/20, at 5:12 AM EST: The Fed got creative yesterday. Instead of goosing banks after the stress test results they were goosed before. The XLF rallied and was sticky at that 23.36 area called out above. Restrictions put on banks during the Great Recession (Volcker Rule) were lifted which will enable the corrupt banksters to start freely gambling in the derivatives markets again. Of course, when they get into financial trouble a la 2007-2009, the American taxpayer will bail them out. No wonder the huddled masses are fed up and crony capitalism is ending in America. The Fed says don't worry, everything's gonna work out right. The XLF catapults higher into the closing bell ending at 23.59 with bull smiles all around. The Fed, however, for the stress test results, freezes the bank dividends for a quarter and halts buybacks. Banks sell off in late trading and come back down to that 23.36 area. XLF is currently trading down -1.4% to 23.26 in the pre-market which would usher in stock market negativity. S&P futures -9. VIX 32.71.