Bank Stocks Surge: But Danger Lies Ahead

I’m kicking off today’s update with something a little different.

We’ll be looking at the financial sector and why yesterday’s surge among banking stocks could offer an early warning sign.

It’s something technical analysts might call distribution, a phenomenon that tends to occur in the very late stages of an established bull market.

So, why use banking stocks for our example?

Well, knowing what a mature bull market looks like will help us recognise the warning signs for a top in the commodity cycle.

Let’s be clear: the mining sector isn’t there yet, but we still need to be attuned to the clues that could signal the final throes of a bull market.

Today, this is perhaps most relevant for finance and tech.

So, let’s kick off our understanding with an explanation of what distribution means.

Simply put, it’s the phase that tends to follow a bull market.

Whatever goes up must come down.

But it doesn’t happen immediately; distribution is a transitional phase in which stocks (or markets) turn from bullish to bearish.

One key feature of distribution is increased volatility, with larger daily moves both up and down.

That also drives higher trade volumes, as more buying and selling takes place.

But here’s another important feature of distribution…On the buy side sit the less ‘informed’ retail investors.

But on the sell side sit the insiders and institutional investors who are offloading their stock at record-high prices.

Distribution means: retail-in, institutional out.

From strong hands to the weak hands, the mum and pop shareholders.

So, don’t be one of them!

Why volatility rises during distribution

Retail investors tend to be far more headline-driven. Bad news drives them to sell; good news causes them to buy again.

In other words, they don’t have the nous or time to understand the intricate workings of the companies they hold, unlike institutional investors.

That explains why volatility and volumes rise during the distribution phase.

So, here’s one example of a stock that could be entering this phase: ‘distribution.’

The concern here is that it’s also one of Australia’s largest and most important companies, the Commonwealth Bank of Australia [ASX: CBA].

And a stock that’s heavily leveraged to Australia’s real estate boom:

Source: Trading View

[Click to open in a new window]

To clearly highlight this ‘distribution’ phase, I’ve used a bar graph showing the opening and closing prices over weekly intervals.

Now, note the bars I’ve circled; they’re clearly anomalies on this chart.

At no other time in its recent history has CBA stock undergone such volatile weekly price moves.

That’s our first clue that the stock could be entering its distribution phase, or the final throes of a multi-year bull market.

As you can see on the circle to the right, CBA moved more than 12% in yesterday’s trading, a monumental move for a $300 billion company.

And that follows a similar move made in November 2025, when CBA fell by around 12% over a week.

Time will tell in this epic story; you can never be absolutely certain as you watch charts unfold in real time, so we will revisit it.

Also, distribution can take months, sometimes years, before a stock falls into a prolonged bear market.

But clearly, there are warning signs to watch.

Could one of Australia’s most important companies, a pillar in the Aussie economy, be nearing the final throes of a bull market?

Something to consider.

By the way, ‘Big Tech’ is also displaying similar distribution patterns.

But given the huge bull market in US tech stocks, this sector will take time to unravel as ownership gradually shifts into those weaker hands.

Is it any coincidence that the SpaceX IPO, the world’s biggest yet, is happening at a time when tech enters distribution? Nope.

Retail-in, institutional out.

So, if you’ve done well out of owning these types of stocks, NOW might be the time to shift your capital away from these maturing bull markets.

And in my mind, the resource sector holds the key. It is still emerging.

But do note, there are ‘markets within markets’ when we look at resources.

By that, I mean that certain commodities could be much closer to a late-stage bull market than others.

So you need to be strategic.

If you’d like to learn which areas of the resource sector I’m targeting for my paid readership group, you can find out here.

Until next time.