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.