Watch This Market For A Breakout

Above is a weekly chart of the banking Index (BKX) along with Bollinger bands and in the lower panel is an indicator which shows the width of the bands. We haven't heard much about the bank stocks lately for the simple reason that this group of stocks have been in a trading range over the past 5 or 6 months. As a result of this lack of movement the Bollinger Bands have contracted to their lowest level in many many months. Usually such a contraction in volatility takes place just prior to a trending move.

The bank stocks have been lagging the market and have not participated much in the rally the overall stock market is currently enjoying. I think it's safe to say that the bank stocks have been showing relative weakness when compared to the S&P500 which leads me to believe that the next move for these stocks will be lower.

Rather than guess which way these stocks are going to move, I think it is much wiser to wait for the BKX to break out of the current trading range and then go with that move whichever direction it may be.  As always, lets see what happens!