Banks chopping to create probable bear flag as FDIC fund goes technically negative

The banking index ($BKX) have been eking out a shallow move up that's more sideways than up, while other indices have done better (though the Dow is virtually alone in having poked a new high yesterday). Assuming the "B" wave top was already put in by the banking index - as we've addressed over the weeks here - then this choppy, hesitant advance is likely to be just a bear flag before the next wave down. Not that the news today of the FDIC's bailout fund helped much. Turns out, it only went $8b negative because the FDIC set aside over twice that as a reserve. But I think the idea was normally supposed to be, that fund should be a reserve containing actual dollars and not a mix of real plus fictional (negative, or unfunded) dollars. Oh well! This concept isn't a surprise anyway. So as always it just boils to whether enough "investors" really want to buy and hold bank company shares. For clues, keep an eye on the 50-day moving average above, and the prior swing low below.

If it really wants to breakout, fine - but conversely, I'll play the pessimist here and recommend against being married to the banking index if it loses the support by moving under the recent consolidation range. The additional news on banks tonight is the number of "problem banks" rose to 522, up from 416 in June and the highest number in 16 years. We're trading on technicals, but the fundamentals aren't reassuring.

Update - And some news via Philip Davis of Phil's Stock World (source link below):

Banking stocks have kept pressure on the EU markets and the S&P issued a bearish report on the global banking industry. What report, you may ask? The report that is not reported at all in the US media in which the S&P "has given warning that nearly all of the world's big banks lack sufficient capital to cover trading and investment exposure, risking further downgrades over the next 18 months unless they move swiftly to beef up their defenses."

Every single bank in Japan, the US, Germany, Spain, and Italy included in S&P's list of 45 global lenders fails the 8pc safety level under the agency's risk-adjusted capital (RAC) ratio. Most fall woefully short. The most vulnerable are Mizuho Financial (2.0), Citigroup (2.1), UBS (2.2), Sumitomo Mitsui (3.5), Mitsubishi (MFG) (4.9), Allied Irish (AIB) (5.0), DZ Deutsche Zentral (5.3), Danske Bank (DNSKY.PK) (5.4), Banco Bilbao (BBVA) (5.4), Bank of Ireland (IRE) (6.2), Bank of America (BAC) (5.8), Deutsche Bank (DB) (6.1), Caja de Ahorros Barcelona (6.2), and UniCredit (6.3).

Article by Philip Davis at Seeking Alpha, http://seekingalpha.com/article/175061-options-trader-tuesday-outlook-big-data-day 11/24/09.