Starting with the Jeffries Group reporting on January 9th, by Friday we will see Bank of America (NYSE:BAC), JP Morgan (NYSE:JPM), Wells Fargo (NYSE:WFC), and Citigroup (NYSE:C) as well as a few other banks report earnings.
In my 2024 Outlook and this Year of the Dragon, Raymone Lo, in his analysis for 2024 he writes, “The Dragon is considered a ‘Star of Arts.’ The industries that will perform better in the Year of the Dragon will be industries related to Metal elements and Wood elements. Metal industries are banking”
Hence, one can assume that bank stocks, which already started off the year extremely well, have the potential to shine.
However, we know that assumptions can be tricky.
There are those who still believe credit issues with Regional Banks could put pressure on the financial markets.
“U.S. regional banks have a tougher road to growing profits in 2024 as they face pressure to pay more to depositors versus larger peers while demand from borrowers stays subdued.
With the outlook for interest rates more uncertain, regional lenders' earnings will also be restrained because they are tied into securities holdings that are losing money on paper instead of making loans or investing in higher-yielding assets, said analysts.” Saeed Azhar
With KRE into strong resistance on the monthly charts, what should we be looking for this week?
S&P and Moody's (NYSE:MCO) Investors Service cut credit ratings and revised outlooks for a slew of U.S. banks in recent months on the heels of the Silicon Valley Bank collapse reminiscent of 2008. Both agencies warned that funding risks and weaker profits will likely test the sector's credit strength.
This is why watching the chart of KRE could be important.
While big banks prospered after the regional bank debacle, we know that more stress could be yet another pick-up stick for the economy, the Fed policy on rates and the stock market.
On the monthly chart, 54.00-55.50 is major resistance using the 23-month moving average (blue) and the 80-month MA (green).
That price level also corresponds to the “scene of the crime” from last March.
Ideally, bulls should feel safer in all the bank stocks if KRE can clear that resistance.
And we don’t want to see KRE fail 50.00 once earnings are reported.
I almost gave our Prodigal Son (yes in the economic modern family) up for dead.
Perhaps it been more comatose.
Regardless, we shall know soon enough as earnings, support, resistance and the 6-month calendar range all align.
ETF Summary
- S&P 500 (SPY) 480 all-time highs 460 underlying support
- Russell 2000 (IWM) 195 pivotal 180 major support
- Dow (DIA) Needs to hold 370
- Nasdaq (QQQ) 390 major support with 408 resistance
- Regional banks (KRE) 47 support 55 resistance
- Semiconductors (SMH) 170 cleared with this sector back in the lead
- Transportation (IYT) Needs to hold 250
- Biotechnology (IBB) 130 pivotal support
- Retail (XRT) 70 now key and pivotal