Eoin Treacy's view Sentiment towards the banking sector remains bearish, at least in part because so many investors have been scarred by the post Lehman bankruptcy panic resulting in abrupt declines for these shares. However, a one size fits all attitude to the banks would be inappropriate. Some of the larger investment banks have recovered impressively over the last year and a number of regional banks, which are generally more representative of the wider economy, have broken upwards to new recovery highs. (Also see Comment of the Day on February 11th 2010)


The S&P500 Banks Index ranged below 140 and above the 200-day moving average since August and broke upwards to new recovery highs this week. A downward dynamic would now be required to question scope for some additional upside.

The KBW Regional Banks Index has been a leader among bank related indices. It broke to a new recovery high in January, pulled back to the 200-day moving average, found support there and reasserted the medium-term uptrend this week. A sustained move back below 50 would now be required to question scope for further upside. The regional banks, which can be considered a gauge of recovery among relatively straight forward deposit taking institutions have also moved to outperformance compared to the S&P500 in a positive signal for the wider US economy.

The S&P500 Diversified Financials Index which holds some of the firms that received the most Federal assistance is lagging, the above two sectors but is heading in the same direction. A downward dynamic would be required for the October high to offer anything other than temporary resistance.

The results of a High/Low Filter of the constituents of the S&P500 Banks, S&P Diversified Financials sectors demonstrates that 21 shares are posting new highs and none are breaking to new reaction lows. A similar scan of the KBW Regional Banks Index has 23 shares breaking to new highs. This is broadly positive action and suggests that underlying support can probably sustain further upside for these shares.