The saying “so goes the banks, so goes the broad market” is about to experience a big-time test.
This chart looks at the Bank Index (BKX) on a monthly basis over the past eight years. Since 2015, the 78 price zone, reflected by line (1), has been tested as support and resistance.
Since the March lows by banks, the index has struggled to move above the resistance zone and its 38% retracement level at (2). While testing the underside of this area, banks have created a few bearish reversal patterns over the past six months.
Even though banks have struggled to move higher over the past few months, the same cannot be said for the broad markets. Does that mean the saying, “so goes the banks, so goes the broad market” no longer applies?
Regardless, if the saying remains true, how banks handle the resistance zone and its 38% Fibonacci retracement level at (2); will most likely send one of the more important messages to the broad market in years.