Your Bank: "Use This as an Early Warning Signal"

 

 First Republic Bank "customers had pulled $100 billion in deposits in the first quarter"

By Bob Stokes Wed, 03 May 2023 11:15:00 ET

More dramatic news on the banking front.

On April 25, investors in the shares of First Republic Bank were hit hard (The New York Times):

First Republic Bank Enters New Free Fall as Concerns Mount
The bank's shares fell by about 50 percent on Tuesday, a day after it said customers had pulled $100 billion in deposits in the first quarter.

As of this writing on April 26, shares are down another 20% intraday.

Of course, there was no way of knowing the precise percentage decline of the bank's shares ahead of time, but we can say that the dramatic developments were no surprise to Elliott Wave International's Head of Global Research Murray Gunn.

On March 31, when the April Global Market Perspective published (Global Market Perspective is a monthly Elliott Wave International publication which covers 50-plus financial markets), Murray showed this chart and said:

Use this for [an] early warning signal ....

 

 

... Look at the relative performance of bank shares. If what's going on behind the closed door of banks is all good, the share price should probably not be UNDERperforming its peers. The chart shows that the relative performance of First Republic versus the KBW Bank Index topped out in November 2020. The relative performance had been trending down for many months before problems emerged.

The worry is that investors' confidence in other regional banks -- indeed, the entire banking sector -- could become even more shaken.

On that note, also in the April Global Market Perspective, Murray provides a table of banks under the heading of "Bank Health Monitor." You can see the performance trend of twenty-one banks relative to the bank index. Your bank might be on the list.

Even if it's not, Murray Gunn's ongoing commentary in our Global Market Perspective (the new May Global Market Perspective publishes April 28) will provide many insights which should be of interest to bank depositors and those who want to know what's going on in the global financial system.

You may also want to keep tabs on the Elliott wave price pattern of the KWB Bank Index itself.

If you're unfamiliar with Elliott wave analysis, or simply need a refresher, read Frost & Prechter's Wall Street classic, Elliott Wave Principle: Key to Market Behavior. Here's a quote from the book:

One complete cycle consisting of eight waves ... is made up of two distinct phases, the five-wave motive phase (also called a "five"), whose subwaves are denoted by numbers, and the three-wave corrective phase (also called a "three"), whose subwaves are denoted by letters. Just as wave 2 corrects wave 1 ..., the sequence A, B, C corrects the sequence 1, 2, 3, 4, 5.

Compound Construction

When an initial eight-wave cycle ... ends, a similar cycle ensues, which is then followed by another five-wave movement. This entire development produces a five-wave pattern of one degree (i.e., relative size) larger than the waves of which it is composed. ... This five-wave pattern of larger degree is then corrected by a three-wave pattern of the same degree, completing a larger full cycle.

There is a way to get a good idea if your bank is headed for trouble. That sign was flashing red before First Republic Bank's shares plummeted by around 50% on April 25.

Now is the time to read Elliott Wave International's special report "How Safe Is My Bank?," which is valued at $49, yet, you can get it for free by following this link.