By Jeff Clark, editor, Market Minute

The bank stocks have fired a warning shot.

The Nasdaq and S&P 500 are trading at all time highs, and the technology sector is getting all the attention. So, it seems like nobody is watching the banks.

Maybe we should, because that picture doesn’t look so pretty.

Here’s the chart of the KBW Bank Index (BKX)…

Click to expand image

The BKX peaked last month near 108. It has since pulled back about 7%. While the index is still up on the year – about 4% higher than where it started 2024 – the recent action is concerning.

Bank stocks tend to lead the broad stock market. A rally in the banks tends to precede a rally in the S&P 500. And, a decline in the banking stocks often leads to a decline in the market. So, the fall in BKX over the past month is a bearish omen.

Another concern is that the moving averages on this chart shifted into a bearish formation last week. The 9-day exponential moving average is trading below the 20-day EMA. And, both of those short-term moving averages are trading below the 50-day MA.

The two times that happened last year marked the start of intermediate-term declines for the bank sector. And, the broad stock market followed the bank stocks lower.

So, unless the bank stocks recover this week, and the short-term moving averages cross back above the 50-day MA, the banking sector is likely headed lower over the next few months.

Technology stocks have been fueling the constant stream of new all-time highs in the Nasdaq and the S&P 500.

But, the bank stocks are a stronger leading indicator of market direction.

The BKX has been falling for the past month. And, it looks like that decline is about to accelerate to the downside. When that happens, the broad stock market is likely to follow.

Best regards and good trading,

Jeff Clark