After a month marked by failed breakouts in the riskiest stocks, this morning on the Open Bar, I took a step back and reviewed some of the most bearish groups.
Warning Signs from the “New 3 B’s”
It has been a teflon run off the April lows, but the market has started to show some cracks of late.
Key risk-on areas — Regional Banks, Homebuilders, and Bitcoin — are flashing warning signs, suggesting heightened downside risk.
Here are the charts, showing dynamic support levels off the April lows.
The bottom line is bad things happen below VWAP… and that’s where these guys are living for now… besides the banks.
Regional Banks
They keep holding on, but I doubt they will end up looking any different from homebuilders over time. If the other B’s roll, look for banks to follow.
The big banks, though, are another story. They are built differently, and I think they can continue to act differently… staying strong despite weakness from the little guys.
Homebuilders
Homebuilders currently look like the worst of the worst. The weakness comes amid some sector-specific headwinds, and the short-term outlook suggests more downside could be ahead.
If rates keep ticking higher, this group is likely to lead lower. Simple as that.
Bitcoin: “guilty until proven innocent”
Bitcoin continues to lose ground, despite its big-cap tech peers showing strength. Until it can reclaim and hold key levels, we want to treat this as a topping pattern.
We’re seeing very similar bearish action and patterns playing out in Ethereum and Solana, which we are monitoring closely for supporting evidence.
Potential Dollar Headwinds
DXY might be the single most important chart right now. Major currencies –including the Canadian dollar, the pound, the euro, and the yen — are already breaking down relative to the USD.
If those are all tops, then this is going to be a durable bottom in the US Dollar Index.
If that plays out, the current market weakness is likely to expand beyond the 3 B’s, and dollar headwinds could throw a wrench in the broader risk asset rally.
