I mentioned on my “Outlook” blog that the US banks are amongst the holdings we at ValueTrend have rotated into. It’s a sector that might benefit from a potential move from the high flying tech stocks into the more overlooked sectors on the market. We hold a position in the BMO US bank ETF (ZUB-T) in our platform. Sometimes when we look at a sector favorably we just buy an ETF. In other sectors such as technology or energy, we usually prefer to pick and choose the individual names.
The US big banks have already broken out. Below is the ZUB chart, where you can clearly see a nice breakout followed by some upside momentum. Given the length of the sideways trading base, the breakout suggests significant upside potential . As is said in Technical Analysis , “The greater the base, the better the case”. Or something like that!
The regionals have been a step or two behind the big banks. At least from a technical perspective. Below is the US regional bank ETF KRE-US. You can see that we are in a much earlier stage of the breakout. The chop in the sector since the breakout may be due to the independent problems that regional banks in the west might face in lieu of the fires. The economy will be affected in California by these fires, therein affecting their banks. Thus–The reason I would consider an ETF like this one is to diversify outside of any particular regions’ challenges.
Whether we look at the large banks or the regionals, both are benefactors of rising interest rates and steady economic growth. One could argue that the stage is set for both in the USA.
Keith on BNN Monday January 8th 2018 at 5:30pm
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Keith appears regularly on BNN MarketCall to answer viewer questions on the technical analysis of stock trends, and to provide unique insights on the factors of technical analysis used in successful investment management.
Attention snowbirds- keep February 10th open
Some of you know that I speak at the Toronto MoneyShow every year. This winter, the MoneyShow has invited me to speak at their Orlando show on February 10th at 6:15pm. Honestly—who would say no to that offer, given our wretched winter weather in Ontario? If you happen to travel to central Florida during the winter, or if you have family/friends who do the snowbird routine—come on over to the show. It’s taking place in the Omni Orlando Resort – I’ll post further details when the time draws nearer.
How does KRE compare to IAT, which is also a regional bank ETF?
Linda–from a chart pattern point of view, they are very similar. I’d probably stick to KRE if I was buying one of them, given its greater volume (liquidity).
Do you consider a KRE as it current price around $61.19 still a good buy with upside potential over the next few months?
Good question–both major banks and regional banks have an upcoming end to their seasonal period in June. However, the chart suggests a couple of things:
-in the nearterm, both are oversold and are (so far) successfully testing support. This suggests some potential for a short termed rally –a month or so possibly, assuming markets cooperate’
-the intermediate termed move will be dictated by the summer’s move on the broad markets. A summer broad market bear implies pressure on everything–and banks being out of season will be affected. However, that comment should be viewed in light of the actuality of a summer correction (ie is it happening, or is it likely to happen)
-the long term is back to being bullish. The chart is suggesting both a long termed uptrend since 2008 and a pretty nice breakout from a sideways period in early 2016.
I’m paying a lot of attention to my Bear-o-meter lately–to me, that compilation should provide ample notice of an increase in risk. And yes, I will continue to post its readings–probably again in 2 weeks on this blog.