BKX, C & KBE may be ready now - My C-canary bank not faring well, but Fibonacci may provide dime for banks to turn on

The banking index measured by BKX (and therefore the exchange-traded fund KBE) finally reached an important low target that can be the first signal the tide will turn in this troubled industry.

Citigroup (C) - my "canary in the coal mine" of the banking sector - sank today (no surprise as I've been saying, and it's marked on my chart, it "broke" weeks ago failing a key Fibonacci test). Whether or not it survives (not my place to offer any hope there!), bank stocks can still turn on a dime provided by that same Fibonacci. This good news comes right out of the charts, where the banking index (BKX) met the level ~26 I've been showing here as the fifth wave target in an Elliott Wave ending diagonal structure. The wave structure fits, the Fibonacci-based extension ratio fits, and other technical indicators may provide support (as discussed below, under the charts). Maybe the timing also fits, with a new administration that might spark some new hope for the banks.

What about the banks digging a new low when the broader indices did not? There may be discussion whether this points the way to new lows for the broader markets. Certainly if the banking index doesn't turn around from this key Fibonacci level, that will be a very bad sign for what's ahead in equities generally. But for now, looking only at the bank stocks - for a technical trader, this could mark a point from which a speculative long position could start in the banking group, backstopped (with a stop loss) at today's lows.




The weekly BKX chart shows that, in addition to meeting the Fibonacci target within a diagonal structure, the RSI still shows positive divergence within the triangle I marked on the RSI indicator. The stochastics and MACD indicators do show the oversold conditions that go along with this steep dive, but also hints of positive divergence on both the weekly and daily charts. Still, an investor or trader shouldn't step in unless the classic predicates appear. The first and most obvious is a trigger day - a day that goes above the high of the prior day (and should close above that HOD (high of day) also). There certainly are swing traders and position investors that will also wait for a trend reversal pattern, such as a solid move higher on good buying volume, followed by a pullback on light selling volume, and then a resumption in the (presumptive) new upward trend.

I do like the idea of looking for a solid setup before wading in on the long side. But my experience with ending diagonals gives me great hope for the turnaround to be here. So - despite feeling like that "Tweety Bird" canary scared by the pussycat (images I added to my Citigroup chart, via Wikipedia)! - I'm greatly encouraged. This level that the BKX reached in the Elliott Wave diagonal it normally signals the final ending move. I'm not saying that each and every bank and bank stock will make it. For example, the Citigroup chart gives me great pause for that company. It's the banking index as a whole that's finally due for a turnaround. Yes, I'm going to say it - "the low" looks completed in the bank stocks! Fitting for an inaugural day, when the old (banking) regime leaves and makes way for the new.

Now, I shouldn't have to say this but will - if this level turns out not to provide support for a turnaround in bank stocks - it bodes very ill for this sector and the markets generally. Thus the point about stop loss, as always with any investment or trade.