How Charts Can Help You Avoid Disasters Like SIVB & SBNY
The regional bank crisis is one of the biggest stories of 2023.
Investors in stocks like SVB Financial (SIVB), Signature Bank (SBNY) and others are staring at billions of dollars in losses.
But, you could have avoided the trouble if you understand some simple trend analysis rules
Let's start with SIVB since they were the driver of this mess.
There was nothing in SIVB's chart that said “buy me” or even “hold me.”
The stock's been in a long-term downtrend, and it was rejected at the 200 day on February 2before losing the 8/21/50 day once again:
So even if you didn't get out on February 2, you had weeks to exit before the implosion.
Signature Bank (SBNY) had an even worse chart than SIVB and appeared to be the next domino to fall. That's why I bought puts, as you can see on my disclosure at the bottom of this article:
And as for Credit Suisse (CS), it seems like it's in a scandal of some kind once a year. But even before its latest problem (financial reporting issues), the chart has been screaming get away:
Now let's look at the
The SPDR S&P Regional Banking ETF (KRE) is obviously a major focus. And it gave a signal to exit on February 21 at $62. Then it broke the 2022 low at $56 – another sign to exit:
Now, see if KRE holds Monday's low at $41.92. Wednesday's $44.64 low is important too. That will tell us a lot about sentiment.
XLF also signaled trouble. Remember, banks are supposed to do well when rates are rising. But on March 7, XLF put in a big bearish engulfing red candle. That was a big warning that the sector could be in trouble.
JP Morgan (JPM) is thought of as the “best in class” bank, but even it couldn't escape the heat. It also put in a bearish engulfing candle on March 7.
Finally, we have Bank of America (BAC). Of course it's getting hit like the other banks. But it failed to make higher highs in February the way JPM did. BAC also just broke the 2022 lows. The chart is telling is there are more problems ahead. So keep a close eye on it.
The lesson here is simple.
Charts usually tell us something's in trouble before the news.
You didn't need to know about SIVB's failure to manage interest rate risk to know the stock was an avoid.
You just needed to see the chart was in a clear downtrend.
The same is true for SBNY, CS, FRC, and the other declining names.
You can even go back to the peak of Cathie Wood's ARK Innovation ETF (ARKK) and high-growth names back in February 21.
The charts went into downtrends well before growth numbers slowed.
Moving averages are not a magic bullet. But they do a great job of telling you the temperature of the trend.
With the banks, it was clear things were cooling off.
Scott Redler's positions disclosure as of 2023-03-16 at 8.34.27 AM
