Banking stocks across the U.S. have fallen sharply and bounced toward major long-term resistance levels in a similar fashion as the rest of the market. The recent move toward the resistance of influential trendlines and long-term moving averages is reason enough for those who follow technical analysis to add this sector to their radars over the coming weeks because the dominant momentum will likely be a leading indicator of what could be in store over the weeks ahead.
SPDR S&P Bank ETF (KBE)
Traders looking to get a sense of where a market segment such as banks are headed often turn to popular exchange-traded products such as the SPDR S&P Banking ETF (KBE). As you can see from the chart below, March's sharp sell-off triggered a bearish crossover between the 50-day and 200-day moving averages, as shown by the blue circle. This common sell signal is known as the death cross and is used by followers of technical analysis to mark the beginning of a long-term downtrend.
While the bounce from the lows may get some traders thinking of a recovery, the downward-sloping averages will likely act as resistance and make it difficult for the bulls to reverse the trend. Bullish traders may want to wait on the sidelines for prices to move above the resistance levels or for the major indicators to turn bullish again.
Voya Financial, Inc. (VOYA)
One of the top holdings of the KBE ETF that could capture the attention of active traders is Voya Financial, Inc. (VOYA) because the stock price is very close to the downward-sloping 50-day moving average, which is a common guide used to position buy and sell orders. Like the chart of KBE shown above, the chart of Voya Financial also showcases a bearish moving average crossover, which could be a signal of longer-term downtrend.
In addition to the bearish moving average crossover, technical traders will also likely want to pay close attention to the price action over the coming days to see how it reacts to the horizontal trendline. This level has provided a clear guide for the placing of buy and stop orders in the past, and traders will likely expect the same type of behavior to continue in the future. More specifically, traders will likely expect the trendline to act as a ceiling to recent momentum, and it could be used as a guide for the bears looking to enter a position.
SVB Financial Group (SIVB)
Another top holding of the KBE ETF that could be worth a closer look is SVB Financial Group (SIVB) because the price is trading close to two significant trendlines that have greatly influenced the price action over the past year.
While Tuesday's move above the first trendline could be viewed as a win for the bulls, there are still two others that the price needs to overcome before the uptrend is able to continue. Longer-term bulls may want to set buy orders near $225 and watch closely over the coming days to see if the nearby resistance influences the price in the same manner as described in the scenarios above.
The Bottom Line
Bank stocks along with nearly every sector in the global markets suffered sharp declines in March. While the recent bounce may have some traders thinking about a resumption of an uptrend, nearby resistance suggest that the momentum is still in the favor of the bears. Bullish traders who follow technical analysis may want to wait on the sidelines for the price to rise above nearby resistance or for other indicators to turn positive again.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.