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(Reverse) Parabolic: The Philadelphia Banking Index at Trader’s Narrative

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Here’s a novel way of looking at the Philadelphia Banking Index (BKX).

Turn it upside down!

Philadelphia bank index BKX upside down parabolic
Credit: Yes and Not Yes

And voila! the parabolic move is suddenly so much more recognizable. Keep in mind the parabolic move is obvious even when the chart is logarithmically scaled. Of course, when any market trends with more and more intensity, it approaches an eventual exhaustion point. We’ve seen this in every single bubble formation - no matter what the underlying security being traded: gold, bonds, stocks, tulips, etc.

The last time I mentioned this type of technical formation was last year when we looked at the price of crude oil. The price chart of oil had the unmistakable characteristic of a bubble, taking less and less time to increase more and more. It took one more month for the oil bubble to be pricked.

The chart above would suggest that the exhaustion point for the beleaguered US financial sector is near. No one knows if what we’re seeing is yet another short lived counter rally or if it is really the blow off. What is clear, however, is that the trend has very little time left to breathe (if it hasn’t given up its last gasp as of yet).

The Question
Here’s an interesting video which covers the question on everyone’s mind: is this rally the real deal? or another run-of-the-mill bear market rally? It also uses Fibonacci levels to provide some levels to watch for next week.

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3 Responses to “(Reverse) Parabolic: The Philadelphia Banking Index”  

  1. 1 Yesandnotyes

    I totally agree, I’m just not sure how the “parabolic” banking sector will resolve. Will it come crashing “up”? Or will it consolidate for several years before making a slow ascent? For some reason I feel the banking sector is different from other parabolic moves we’ve seen in the past and therefore a crash “up” might not be in the cards.

  2. 2 jkw

    Turning the chart upside down doesn’t work very often. Prices can’t actually go to infinity, but they can actually go to 0. The banks aren’t going to become worthless, but there is no reason to think that they can’t drop to almost nothing and stay there for a while.

    Bubbles occur when poeple buy something just because it is going up in price. In this case, I don’t think people are selling the banks just because the stock prices are falling. The selling is accelerating as people realize that the banks are mostly insolvent. This is not an irrational departure from value like oil and housing were. This is a rush to the exits as people realize they are holding an almost worthless asset.

  3. 3 CTC

    Regarding the upside down KBW index chart you posted, I think the comparison to Oil is a mistake. Oil is a commodity that has some intrinsic value that people need everyday for home and business. Sure the Commodity bubble indicates it was way way overvalued, but Oil is a “thing” with real value.

    The banks are certainly needed and can make money at 0% interest courtesy of the government but this doesn’t justify the idea that the banks are going to skyrocket from their current valuation.

    The banks and the government can do whatever they want to try and convince the world that they are solvent, but the repair to asset valuation to loans outstanding indicates that they are in the red big time without government support.

    This is why I think it is so unethical of the banks and government to try and change the mark to market accounting rules. The premise is that someday these assets will return to their former values. Well, what if they don’t which is more likely and in fact they may not even return to 50 cents on the dollar of their loan or asset value ever.

    How can an investor believe the banks when they continue to hide the true value of their balance sheets. It is truly a sad state of affairs when we now have the FASB and the Congress buying into the bank lobbyists nonsense that mark to market is the cause of the collapse of the banking industry.

    I understand what you are saying regarding the KBW chart but even the Oil charts haven’t returned to their former glory. We will continue to bounce around the bottom of 600-800 on the SPX for a long time to come.

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