• Investing
  • Stock
Round Table Thoughts
  • Economy
  • Editor’s Pick
Home Stock Is the Banking System on the Verge of Systemic Implosion? What to Look Out For
Stock

Is the Banking System on the Verge of Systemic Implosion? What to Look Out For

by April 10, 2024
by April 10, 2024 0 comment
Share
0
FacebookTwitterPinterestWhatsapp

2024 will be marked by a massive string of bank failures!!! Well, according to a few economists on the far end of the mainstream economic spectrum, that is.

This sounds alarming, of course, but does the fringe position of its proponents invalidate the thesis?

No Bank Is Safe, as Nearly Every Bank Is Insolvent

The core reason for this impending catastrophe can be linked to the insolvency of almost every bank.

But how’s that even possible? How can they fundamentally validate such an outlandish claim? It’s the consequence of the Federal Reserve’s interest rate policies. With interest rates soaring, the value of banks’ government debt holdings is substantially underwater—enough to drown banks’ reserves in a sea of red.

So what’s the big takeaway from the doom-and-gloom pulpit? It’s this: the big implosion is coming, and it’s happening this year.

“But hold on,” the moderate view says, “Not so fast; it can’t be that bad, even if the outcome isn’t all that good.”

Let’s be objective, starting with: What do the technicals say?

The Macro View: Too-Big-To-Fail and Regional Banks

While the risk of a few more bank failures is plausible (since a few tend to happen each year, on average and on a regional level), a string of failures triggering a systemic banking crisis is something else. Can it happen?

CHART 1. PERFCHART OF SMALL AND LARGER BANKS AND THE S&P 500. Note their rapid recovery since the March 2023 banking crisis (quickly stemmed by the Federal Reserve’s Bank Term Funding Program, which ended on March 11, 2024).Chart source: StockCharts.com. For educational purposes.

Last year, Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank collapsed, triggering what would have been a much larger crisis had the Federal Reserve not stepped in with its Bank Term Funding Program (BTFP). BTFP aimed to stabilize the banking system by providing loans to banks and credit unions against collateral like US Treasuries and mortgage-backed securities valued at par.

Looking at the chart, you can see how large banks (using KBE and $DJUSBK as proxies) and regional banks (using KRE as a proxy) underwent a rapid recovery. Compared to a year ago, large banks are outperforming the S&P 500 ($SPX) while regional banks, the laggards, are well within positive territory.

The Channel Broke

CHART 2. DAILY CHART OF KBE. Price just broke below the upward trend channel, but the drop in momentum might have forecasted this decline a month ago.Chart source: StockCharts.com. For educational purposes.

Momentum for KBE, an industry proxy for large banks, began hinting at a bearish divergence in momentum in early March based on the Chaikin Money Flow’s (CMF) extreme downward slope into negative territory. Its rise against the S&P 500 was tepid and steady, but its underperformance against the Dow Jones US Bank Index was as silent as it was foreboding.

KBE finally broke below its uptrend price channel, and the next set of support levels are at the $41, $39, and $37 range. The current decline was triggered by Wednesday’s negative  Consumer Price Index (CPI) results, soon to be followed by Thursday’s Producer Price Index (PPI) numbers. How low can KBE drop? Pay attention to the current earnings season—read the figures,  analyze CEO-issued guidance, and consider (if it’s sensible enough) a few analyst forecasts that aren’t just following (or regurgitating) mainstream opinions.

What about regional banks?

CHART 3. DAILY CHART OF KRE. Regional banks are drastically underperforming their larger counterparts in the banking sector. Chart source: StockCharts.com. For educational purposes.

On March 27, the article KRE’s Impending Plunge: What This Emerging Crisis Means forecasted this decline based on similar technical and fundamental assessments. You can see the divergence between KRE’s price and the CMF. What wasn’t discussed, though, was KRE’s silent (through drastic) underperformance against its larger banking sector counterpart ($DJUSBK). 

The potential support levels are also outlined in the chart above ($45, $44, and $43 range) though its continuing slide, and whether it plunges further will be driven by fundamental conditions. Like KBE, pay attention to the current earnings season’s figures and news.

Is the Implosion Coming?

In the shadow of last year’s banking failures, several economists from the margins of mainstream forecasts ominously predict a widespread banking collapse in 2024. This dire prediction is rooted in the belief that nearly every bank teeters on the brink of insolvency, a crisis precipitated by the Federal Reserve’s interest rate policies, which have left banks’ reserves vulnerable due to devalued government debt holdings.

Of course, this could all be alarmist rhetoric. But if it does play out, partially or entirely, the technical levels and indicators at play can help you navigate the circumstances should you decide to take action, whether it’s bullish or bearish.

Disclaimer: The content in this article is the writer’s opinion and does not constitute financial advice. StockCharts.com does not endorse or guarantee any claims made in this article. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

You Might Also Like
  • Three Behavioral Biases You’re Probably Struggling With Right Now
  • Soybeans Could be the Next Parabolic Runner
  • Caclulating the Risk of S&P 500 Downside Below October 2022 Low
  • Where to Find Stock Opportunities in Bear Territory
Share
0
FacebookTwitterPinterestWhatsapp

previous post
‘They can’t get it wrong again’: Economists are increasingly uncertain about Fed rate cuts this year
next post
Biden, Harris announce new campaign push for LGBTQ support, call members ‘a force to be reckoned with’

You may also like

GNG TV: Small But Mighty — “Go” Trend in Russell...

June 9, 2023

Market Foundation Showing CRACKS!

July 9, 2024

Sector Spotlight: Monthly RRG Shows Preference for Stocks Over Bonds

September 5, 2023

ChartPacks: The Quick and Easy Way to UNLEASH THE POWER...

September 30, 2023

MEM TV: Leadership Emerges in a Flat Market

April 22, 2023

EQUITIES CLIMB OFF LOWS WITH A PUSH FROM AEROSPACE AS...

April 29, 2024

DP Trading Room: Magnificent Seven Stocks in Bear Markets

March 31, 2025

Charting the Great Rotation of 2023

August 12, 2023

Top Five Charts of 2023 #2: Ten-Year Treasury Yield

December 19, 2023

Week Ahead: NIFTY Placed At Decisive Levels; Set To Begin...

May 27, 2023

    Stay updated with the latest news, exclusive offers, and special promotions. Sign up now and be the first to know! As a member, you'll receive curated content, insider tips, and invitations to exclusive events. Don't miss out on being part of something special.


    By opting in you agree to receive emails from us and our affiliates. Your information is secure and your privacy is protected.

    Recent Posts

    • Krispy Kreme stock plunges after doughnut chain pauses McDonald’s rollout, pulls outlook

      May 8, 2025
    • Don’t Buy Robinhood Stock… Until You See This Chart Setup

      May 8, 2025
    • UnitedHealthcare sued by shareholders over reaction to CEO’s killing

      May 8, 2025
    • The Unpredictable Stock Market: How to Make Sense of It

      May 8, 2025
    • AMD CEO calls China a ‘large opportunity’ and warns against strict U.S. chip controls

      May 7, 2025

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be...

      June 27, 2024 2,632 views
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as...

      August 9, 2024 2,339 views
    • 3

      Biden appointee played key role in recruiting Chinese...

      June 25, 2024 2,320 views
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful...

      July 10, 2024 2,302 views
    • 5

      Harris VP pick spent years promoting research facility...

      August 29, 2024 2,186 views

    Categories

    • Economy (7,009)
    • Editor's Pick (2,066)
    • Investing (538)
    • Stock (2,530)

    Popular Posts

    • 1

      Trump-era China sanctions ended by Biden may be revived under new House GOP bill

      June 27, 2024
    • 2

      Walz’s honeymoon with China gets fresh scrutiny as Harris camp blasts ‘lying’ critics

      August 9, 2024
    • 3

      Biden appointee played key role in recruiting Chinese businesses to Delaware: ‘Longtime friends’

      June 25, 2024
    • 4

      Shein’s global ambitions leaves some cybersecurity experts fearful of Chinese spy threats

      July 10, 2024
    • 5

      Harris VP pick spent years promoting research facility that collaborated with ‘Chinese military company’

      August 29, 2024

    Latest News

    • Krispy Kreme stock plunges after doughnut chain pauses McDonald’s rollout,...

      May 8, 2025
    • Don’t Buy Robinhood Stock… Until You See This Chart Setup

      May 8, 2025
    • UnitedHealthcare sued by shareholders over reaction to CEO’s killing

      May 8, 2025

    Categories

    • Economy (7,009)
    • Editor's Pick (2,066)
    • Investing (538)
    • Stock (2,530)

    Disclaimer: RoundTableThoughts.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

    Copyright © 2024 RoundTableThoughts.com. All Rights Reserved.

    Round Table Thoughts
    • Investing
    • Stock
    Round Table Thoughts
    • Economy
    • Editor’s Pick

    Read alsox

    Market Rally or Fakeout? How Politics...

    April 12, 2025

    Master Multiple Time Frame Analysis With...

    February 14, 2025

    Downside Targets For S&P 500 Pullback

    June 24, 2023
    Sign In

    Keep me signed in until I sign out

    Forgot your password?

    Password Recovery

    A new password will be emailed to you.

    Have received a new password? Login here