This Chart Shows that Banks are in Trouble
Are we having another Lehman style crash? It does look like. Europe could implode anytime now. All we need to haver a major collapse of the financial system is a failure of a big bank in Europe.
That can happen very quickly. Lehman and Bear Sterns failed over a weekend. With so many European banks is trouble, we could get a crash anytime now.
Here in the U.S. I’ve been watching the Bank index to track the performance of our financial institutions. It’s also a nice way to track the overall sentiment in the market. After all, our economy cannot do well if banks aren’t doing well.
Looking at the daily chart of the Bank index below (brown line), banks are trading at a critical level. The index is also acting as a leading indicator. As you can see, the bank index started to decline in January, while the S&P 500 (purple line) moved sideways until July.
So if the bank index closes below $35, it will be sending a warning that the overall stock market will fall more. In the forex market, this will push the dollar higher. If the bank index breaks this important support level, stocks will be in trouble. That will be a good time to short emerging market currencies against the dollar.