How to Catch a Falling Knife: Use Bollinger
They say you can't do a lot of things in the market. I disagree.
They say you can’t time the market and that you can’t catch a falling knife. I disagree.
The market can definitely be timed, and to catch a falling knife you have to be able to identify one.
The way you do that is by describing what a falling knife IS NOT.
A falling knife…
Does NOT happen at extreme levels. It’s only extreme after the knife has fallen.
Does NOT happen on low volume.
Today, we saw regional banks at extreme levels, on insanely high volume — this screams “bottom”, and it’s a very high probability it’s NOT a falling knife.
Regional Banks Carve Out Bottom
The following charts use Bollinger and a variant of a Japanese Candlestick known as a Hammer. I refer to it as an intraday reversa.
Read these articles if you haven’t, then refer back to the charts below:
Trading Peaks & Valleys (spotting reversals with Bollinger price extremes)
Intraday Reversals: A Powerful Signal (using certain candlesticks to spot reversals)
Today, we saw major intraday reversals a Bollinger extremes on regional banks.
PACW 0.00%↑ PacWest Bancorp
BSVN 0.00%↑ Bank7
And my hometown favorite in Cleveland, KEY 0.00%↑ Keycorp
I’m very bullish on these stocks for their technicals but also their fundamentals:
These and virtually all other regional banks aren’t as nearly exposed to crypto/tech as Signature/SVB were.
And in accordance with good banking risk management principles, they hedged their loan portfolios against rising rates (something SVB did not do).
The government said every depositor will be backstopped, and
The Fed created a new debt facility program for banks, which allows them to borrow a major % of unrealized losses on loan portfolios.
This probably explains why the market wasn’t down 4-6% today, considering the 2nd and 3rd largest bank blow-ups happened in 48 hours… Why was it up?
One last thing. It’s not a coincidence that fundaments and technicals line up to tell the same story. It happens all the time; price movement is a self-fulfilling prophecy.
The bias for regional banks is to the upside. I believe it’s a heavy bias.