The banking sector may be sending a message that weaker economic times are ahead for the U.S. economy.
This chart looks at the Banking Index (BKX) over the past 25 years. Back in 2007 the index broke 11-year rising support and its 1-year moving average at (1). Once it broke long-term support and the moving average as the banking crisis was underway, the index declined over 80% in less than 2 years.
The index rally over the past few years took BKX back to 2007 highs, where a double top looks to have formed earlier this year. Recent weakness has the index breaking 9-year rising support and its 1-year moving average at (2).
When I look at this chart, the old saying, “as go the banks, so go the broad market” comes to mind.
Keep a close eye on the banking index going forward as they have sent important messages to the broad markets in the past and odds are high that the banks will do it again.