Last week we looked at the banks through the lens of relative strength ratios and the yield curve, concluded that all banks were weak, that regional banks are much weaker than the money center banks, and that banks at the index level had underperformed the SPX since the early 2000s. Prior to the events of the last few weeks, I believed that a significant credit contraction was already unfolding. Recent events have solidified that view. In my view we are early in a banking crisis, that will be centered in regional banking. I expect significant distress but have mixed feelings as to how this Fed will react.
The four largest US banks have 9.1 trillion in assets representing roughly 40% of all banking assets. All four are considered systemically important banks and can be considered the sector generals. This week we focus on JP Morgan.
Much stronger volume in comparison to the recent past after breaking down from strong resistance suggests that the corrective behavior from the October 2022 (101) low to the most recent high is complete. The low volume on the rally coupled with the expansion of volume and a show of weakness suggests that a significant decline is likely unfolding. MACD oscillator failed to generate a buy signal and has turned lower again (see the notes in the triple screen paragraph).
Uptrend support at 104 is minor, I will be surprised if it is strong enough to contain the high volume thrust that is unfolding.
Lateral support at 101 and again at 77 are prime areas to monitor for bullish behaviors.
The 50% retracement of the entire bull market falls in the 88.00 area.
The potential for a head and shoulder top is very apparent in this perspective.
Weekly: Making a high-volume show of weakness after testing the internal 141 resistance zone . The high volume coupled with recent closes near the lows of the weekly price spreads strongly suggests follow through.
The weekly MACD oscillator has rejoined the monthly oscillator (see triple screen below) on a sell signal.
First meaningful chart support cluster in the 101 zone (roughly 17% lower). The support confluence begins at roughly 106 and ends at roughly 95.00 with the lateral support from last Septembers lows (101) being by far the most consequential.
A significant violation of the 101 zone would strongly suggest that a systemic event was unfolding. A breakout would likely target the next major lateral support in the 77 zone.
JPM Triple Screen: Poor MACD momentum across all time perspectives. All perspectives are on sell signals. Note the fresh turn lower in the weekly. The monthly is interesting in that the faster average moved back (hooked higher) to test the slower average and then failed. I generally consider this a failed test (in momentum terms). The failed test makes the weekly sell signal more compelling. Note that the daily is a bit oversold, but with monthly and weekly turning over it isn’t a major warning.
There are three relationships that interest me.
The first is the retracement of the entire bull market. The first leg lower found support in the 38% retracement zone. The 50% comes in around 87.00 and finally the 61.8% in the 67.85 zone.
The second is the retracement of the last bull thrust from 77.00 – 173.00.
The third is the Fibonacci extension of the 2021 high, to the most recent support and then extended from the last high. Equality (1) @ 107.00, 43.00 and 26.00.
Conclusion: Price action is extremely poor. Next zone to monitor for bullish behavior is around 101, but I suspect that much lower is likely. The caveat clearly is the Federal Reserve . If they decide conditions are dire and pivot to cutting rates and ending QT, this could change rapidly. Monitor credit spreads for distress. In the meantime, I will favor strategies that allow me to sell into hourly and daily perspective strength.
And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum.
Stewart Taylor, CMT
Chartered Market Technician
Taylor Financial Communications
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