We have to keep an eye on this situation on the JSE Bank Index. What we see here is the index from the start of the crash in 2007. Note how the index has found resistance, at the previous high, since April 2010. The index has been trading in a "consolidation pattern", that takes the form of a "flat top triangle" for months. Flat top triangles usually break out to the upside and it is a bullish pattern.
If the banking index can break above this long term resistance it implies that the circuimstances for banks have changed for the better and that the negative effects of the recession is behind us. The banks are working through their bad debts and the cost cutting of the past year will improve profitability. South African banks withstood the financial turmoil of recent years and will have room to grow, while their international competition is still flooded with worthless assets.
We will have to wait and see if the index can break resistance before we buy the stronger banks. At the moment the index is overbought on the weekly scale. That means that resisistance might last and the index might pull back to support. It is not yet time to be buying.
