Regional banks are one of the segments of the financial market that have strengthened significantly over the past month without much attention from active traders. As we'll discuss in below, this sector won't go unnoticed for long because major long-term buy signals are starting to appear on charts. Based on the patterns, the retail banking niche could be the one to watch in the final days of 2019 and likely for much of 2020.
SPDR S&P Regional Banking ETF (KRE)
The rise in popularity of niche exchange-traded products such as the SPDR S&P Regional Banking ETF (KRE) has made it possible for retail investors to track nearly any segment of the financial market. As you can see from the chart below, the bears have dominated the price action for much of 2019, as shown by the descending trendline. The reason that this chart is now of specific interest to followers of technical analysis is because the price has recently closed above the influential level of resistance, which suggests that the downtrend is in the process of reversing.
Traders will also look to the recent crossover between the 50-day and 200-day moving average as an added level of confirmation of the trend reversal. This bullish crossover is commonly referred to as a golden cross and is often used to mark the beginning of a long-term uptrend. In terms of risk management, traders will likely look to enter a long position at current levels and protect against a sudden sell-off by placing stop-loss orders below $52.81 in case of a sudden shift in sentiment.
First Republic Bank (FRC)
With a weighting of 3.00%, First Republic Bank (FRC) represents the largest holding of the KRE ETF. Taking a look at the chart below, you can see that the breakout above the descending trendline led to a significant rally in recent weeks. Similar to the buy signal discussed above, the upward momentum has triggered a bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle). Some traders may want to wait patiently on the sidelines for a slight retracement toward the support the psychological $100 level to maximize the risk/reward.
Zions Bancorporation N.A. (ZION)
Zions Bancorporation N.A. (ZION) is another popular regional bank among active traders that has recently crossed above the resistance of its 200-day moving average. The breakout has led to a strong surge in buying pressure, which has triggered a golden cross like those discussed on the charts above. The bullish crossover will be used as confirmation of the newly established uptrend, and most traders will most likely look to enter as close to $45.50 as possible.
The Bottom Line
Regional banks often get overlooked in favor or their more mainstream counterparts such as Citibank Inc. (C) or Bank of America Corporation (BAC). With that said, based on the bullish chart patterns discussed above, it is clear to see that the bullish crossovers between the 50-day and 200-day moving averages will likely draw renewed interest in this niche group and that we could be in the early days of a prolonged uptrend.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.