Global stock markets are rattled on the sharp drop of Credit Suisse shares. The stock was at one point down nearly 25% re-igniting banking fears.
Is there trouble at Credit Suisse? Contrarians have always been calling for another ‘too big to fail’ bank to fall. It has been a split between DeutscheBank and Credit Suisse. Note that both are European banks. Credit Suisse has long been seen as the ‘weakest link among Europe’s large banks‘, and with troubles in the US banking sector, we have seen added pressure on the financial sector in Europe.
The large sell off in Credit Suisse was in part due to the largest shareholder, Saudi National Bank, saying publicly that it would not beef up its investment to help steady the Swiss lender. As mentioned earlier, Credit Suisse shares fell nearly 25% hitting record lows.
Shares in Citibank were down as much as 5%, while Goldman Sachs, JPMorgan and Wells Fargo were each down roughly 4% Wednesday. Bank of America’s stock was trading about 3% lower.
Are there fears of a global banking crisis? Perhaps with interest rates heading higher we are bound to see something break. Not to mention that deposits at banks have been falling and banks aren’t lending as much. All the ingredients are there for a big bank to fall.
“Credit Suisse is not just a Swiss problem but a global one,” Andrew Kenningham, chief Europe economist at Capital Economics research and consulting group, warned clients in a note Wednesday.
That is partly because Credit Suisse is so large — with $574 billion in assets, it is more than twice as big as Silicon Valley Bank — and partly because the Swiss lender has long been seen as the “weakest link among Europe’s large banks,” Kenningham wrote.
As a technical trader, I have warned that equity markets are still holding their support. That is for the US stock markets. At the end of last week, I spotted an opportunity to go short European stock markets, and the charts have not disappointed.
Above are the charts of the German DAX, the UK FTSE, and the French CAC. The Spanish IBEX, the Italian 40, and Euro Stoxx look the same. One thing should stand out. The topping patterns and structure look the same. Once again, if you are a long time reader, you will notice that we trade the exact same structure on the charts. The strategy works for all markets and has a high probability of success. In a spooky way, the technicals can tell what news is coming.
Some of you may think that is just some voodoo, but if you think hard about it, it makes sense. We do live in a world of imperfect information, and if big players know something is coming, or there is trouble, you will see it reflected in the charts before the actual fundamental news comes out. I have been trading and following the markets for nearly 10 years now, and I have seen this play out many times.
While European markets are taking a plunge, a few US markets are still holding our support. I have been telling readers that the Dow Jones and the Russell 2000 have both triggered breakdowns. The latter being a foreboding signal since it tends to lead the other markets. However, the S&P 500 and the Nasdaq remain above their support levels at time of writing.
The S&P 500 is battling at a major trendline, and if we were to close below the recent candle body low, it would nullify the trendline breakout, and thus put a stop to the recent uptrend.
The VIX is indicating that volatility is back. Some use this as the fear index, and the spike is showing there is fear in the markets.
Let’s take a look at our fear/risk off assets.
Bonds is where I first look. They have gapped up today and are still positive for the day, but intraday, we are seeing a sell off. What actually interests me is the broader pattern. There is a real chance that we see a breakout in bonds above 109.50. This could occur due to the Fed pivot/pause and markets pricing in the end of this rate cycle, or because of some event seeing a run into bonds for safety. A pure risk off move.
We are also seeing a run into the US Dollar. The safe haven is getting a bid, and we do tend to see a move into cash when things are volatile and fear is in the markets. From a technical perspective, I have been saying the dollar is in a new uptrend as long as it holds above 103.
Gold is also seeing a bid. Some people might be scratching their heads as both the dollar and gold are up. This can happen, and does happen when confidence is being lost. Or, when there is real fear. Think of gold as the safe haven from the safe haven (US dollar). Remember, we did see both gold and the dollar climb together in the early parts of the GFC 2008.