Chart Advisor: Breaking the Banks

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Thursday, 9th March, 2023

1/ Breaking the Banks

2/ Multi-Month Lows for China

3/ Relative Strength from Semiconductor Stocks

4/ Heating Oil Spills to Fresh 52-Week Lows

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1/ Breaking the Banks

The financial sector came under heavy selling pressure today on the heels of a surprise announcement from Silicon Valley Bank.

The company said it will need to raise capital to meet short-term liquidity needs. In response, bank stocks tumbled on concerns about interest rate risk and what it could mean for lenders’ balance sheets.

Here is a look at the SPDR S&P Bank ETF (KBE), which just registered its worst single-day performance since 2020, reaching new multi-year lows on both absolute and relative terms:

Source: All Star Charts, with data provided by Optuma

Not only is the relative trend resolving to the downside as KBE hits its lowest level since 2020 versus the S&P 500, but momentum (as represented by the one-day rate of change in the lower panel) is at its most negative since the depths of the pandemic drawdown in March of 2020.

Both of these indicators could support a downside resolution on absolute terms. With KBE challenging its pivot lows at the lower bounds of a prolonged topping formation, there could be further downside in store for this battered group of stocks.

2/ Multi-Month Lows for China

The China Internet ETF (KWEB) was hit hard by today’s selling pressure, falling 5% amid a broader selloff for global equities.

Not only is it trading at its lowest level in three months, but KWEB appears to be breaking down from a multi-month topping pattern.

Source: All Star Charts, with data provided by Optuma

Bears are taking control and sending prices lower from the 38.2% retracement of the recent rally from the October lows. This level also coincides with the late December lows.

If KWEB holds below this key zone near 29, it could confirm a topping formation, and we could expect further downside. The next logical support level is about 12% lower, at the 61.8% retracement level.

3/ Relative Strength from Semiconductor Stocks

The tech sector was among the best-performing in the market off last year’s lows, and is now one of the most resilient groups amid the correction that began last month.

However, when we look deeper within the sector, one true leader emerges. The chart below shows the equal-weight SPDR Semiconductor ETF (XSD) making new record highs relative to the equal-weight SPDR Software ETF (XSW).

Source: All Star Charts, with data provided by Optuma

The semiconductor industry has far outpaced any other technology subgroup over the trailing month and quarter. Chipmakers and semiconductor stocks have been the clear market leaders.

4/ Heating Oil Spills to Fresh 52-Week Lows

The financial sector wasn’t the only one breaking down today. Energy commodities also had a rough session.

The chart below shows heating oil futures hitting fresh 52-week lows on a closing basis, down 2.5% on the day:

Source: All Star Charts, with data provided by Optuma

Crude oil and gasoline futures fell 1.4% and 3%, respectively. Even the relatively resilient energy sector was unable to escape the selling pressure, as the Oil & Gas Services ETF (XES) fell over 5% on the day.

It was a difficult day for cyclical assets all around despite the recent rise in Treasury yields. While banks and pro-cyclical commodities stand to benefit from rising interest rates, this wasn’t the case today as the steep acceleration in yields at the short end of the yield curve disrupted the market.

Originally posted 9th March, 2023

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