Major market indexes remain in choppy, volatile sideways ranges as regional bank woes continue to weigh on the market on any given day. And while the index action looks benign, there is much turmoil beneath the surface. The NASDAQ Composite, which was aided by a strong move by Apple (AAPL) after earnings on Friday, is back near its five-week range highs as the other indexes lag.
Three more regional banks joined the distress party this past week, PacWest Bancorp (PACW) and Western Alliance Bancorp (WAL) on Tuesday and First Horizon Corp. (FNH) on Thursday. Recently, a report posted on the Social Science Research Network found that 186 banks in the United States are at risk of failure or collapse due to rising interest rates and a high proportion of uninsured deposits.Rates have soared from near 0% to 5% in record time. Bonds are normally low risk instruments so banks, pension funds, IRAs, and the like have high exposure to bonds. But when rates get hiked so fast, bonds lose big. That Powell said in his testimony that the US banking system is 'sound and resilient' despite three of the largest bank failures in history proves he will lie to prevent people from panicking.
Regional banks across the board have charts that look similar to those below as the group breaks out of bear flags to lower lows.
What is also troubling is the action in big-stock financials that are allegedly immune to the problems that currently beset regional banks. Note that big-stock financials Bank of America (BAC), Citigroup (C), Goldman Sachs (GS), J.P. Morgan (JPM), Morgan Stanley (MS) and Wells Fargo (WFC) are limping along in their chart patterns and Friday's market rally does not seem to have done much to alleviate this. In our view, this implies that the banking crisis is far from over, and thus creates severe event risk for investors on the long side. Caution is advised.
Regional bank troubles ignited a strong bid in precious metals and related stocks throughout the week. On Friday, a stronger than expected jobs number of 253,000 new jobs vs. expectations of 180,000 appeared to keep the Fed on track to maintain rates at current elevated levels for a long period of time. However, 178,000 of those jobs were due to a Birth-Death Model adjustment, the second highest such monthly adjustment on record.Precious metals and related stocks sold off at the open in response but quickly found their feet with many of our favored names in the space posting strong bounces off their 10-day moving averages after becoming extended on Thursday. In fact, we reported on a very strong-volume pocket pivot in the Sprott Physical Gold Trust (PHYS) on Tuesday as it pushed up through the 20-day exponential moving average. It then pulled into its 10-dma and 20-dema where it offered a second entry opportunity using the two moving averages as selling guides.
Silver posted a similar move on Friday. While the Aberdeen Physical Silver Trust (SIVR) did not post a pocket pivot on Tuesday along with all other silver ETFs, it did find buyable support at its 10-day moving average on Friday. That presented a long entry using the 10-day line as a selling guide.
Gold related names that we favor, junior gold miner Alamos Gold (AGI), senior gold miners AngloGold-Ashanti (AU) and Gold Fields Ltd. (GFI), and gold production royalties owner Osisko Gold Royalties Ltd. (OR) had similar moves on Tuesday with breakouts seen in all four by Thursday, AGI, GFI, and OR also posted pocket pivots on Tuesday in sync with the PHYS, but became extended rather quickly while the PHYS remained in a very buyable position and therefore merited a timely report.
Bitcoin ($BTCUSD) and Ethereum ($ETHUSD) continued to correlated closely as they trend higher along their 50-day moving averages. For now buyable support appears to exist along the 50-day line. Note that $ETHUSD posted a pocket pivot off the 50-day line on Friday.
Bitcoin miner Riot Blockchain (RIOT) posted a pocket pivot on Friday along its 10-day and 20-day moving averages on Friday. This is slightly extended but any small pullback towards the 10-day line at 11.12, the higher of the two moving averages, would bring it into buying range and should be watched for. One could then implement either the 10-dma or 20-dema as selling guides.
The Market Direction Model (MDM) remains on a CASH signal. There has been much talk about a Fed pivot where rates are no longer hiked but paused at a fixed rate or lowered. When rates pause, major stock market averages often rally for some time which accounts for dead bat bounces during bear markets. When the Fed is eventually forced to lower rates due to signs of recession, markets tumble. We will be sending a chart in an upcoming Market Lab Report this coming week that shows major average market action after rate hikes are paused then lowered.