Regional banking stocks have underperformed most market sectors in the pandemic recovery rally, pressured by a sharp contraction in economic activity and shrinking net interest margins (NIMs). However, technology traders have banked some profits this week and rotated into the regional bank group in the wake of lower coronavirus case numbers and hopes of a successful vaccine.
Although the daily infection count in the United States still shows active transmission of the deadly disease, it sits 28% below its July 17 second wave peak, providing anticipation that most states will be able to continue reopening and roll back reimposed restrictions in the months ahead. Meanwhile, Russia announced Tuesday that it had approved a coronavirus vaccine after less than two months of human testing. Despite the development being met with skepticism by medical experts, it provided optimism that a vaccine could soon be available in the United States.
Below, we take a closer look at two regional banking stocks and an industry-themed exchange-traded fund (ETF). We'll also analyze the charts and work through several tactical trading ideas.
Comerica Incorporated (CMA)
With a market capitalization of $5.86 billion, Dallas-based Comerica Incorporated (CMA) provides financial services through three segments: business banking, retail banking, and wealth management. Although the company's second quarter earnings declined 59% from a year earlier, the reported figure of 80 cents per share came in significantly above analysts' expectations of 21 cents per share. A rise in loans and deposits added to the bottom line. Over the past three months, Comerica stock has returned 33.10%, outpacing the regional banks industry overage over the same period by 15% as of Aug. 12, 2020. The shares also offer a healthy 6.63% dividend yield.
After several months of trading within a symmetrical triangle, the share price broke above the pattern's top trendline earlier this week, with gains accelerating in Tuesday's session. Those who buy the breakout should consider booking profits on a test of crucial overhead resistance at the $55 level. Protect capital by placing a stop-loss order order below the 50-day simple moving average (SMA) and raising it if the shares climb above the early June swing high at $48.12.
SVB Financial Group (SIVB)
SVB Financial Group (SIVB) offers financial services, specializing in loans and ancillary financial services to startups, private equity, and venture capital firms. The Santa Clara, California-headquartered bank posted second earnings of $4.42 per share on revenues of $881.78 million. Both metrics surpassed Street forecasts, while the top line grew 2.2% on a year-over-year basis. Higher fee income and improving loan and deposit balances were tempered by increased loan-loss provisions and contracting NIMs. As of Aug. 12, 2020, SVB shares have a $13.08 billion market cap and are trading over 40% higher since mid-May.
SVB shares also broke above a symmetrical triangle earlier this week and are now trading just 7% below their 2020 high. Yesterday's 5.31% rally occurred on the highest volume since late June, indicating a level of conviction behind the move. Moreover, the 50-day SMA crossed above the 200-day SMA several weeks ago to generate a golden cross buy signal. Active traders who enter here should set a stop beneath the triangle's upper trendline and book profits near a 2018 double top pattern at $330.
SPDR S&P Regional Banking ETF (KRE)
Launched in 2006, the SPDR S&P Regional Banking ETF (KRE) has an investment mandate to provide returns that generally correspond to the S&P Regional Banks Select Industry Index. As its name suggests, the benchmark comprises U.S. regional banking stocks that results in a major bias toward mid- and small-cap names. Some of the better-known banks in the ETF's portfolio include The PNC Financial Services Group, Inc. (PNC), M&T Bank Corporation (MTB), and Citizens Financial Group, Inc. (CFG). A narrow 0.03% average spread coupled with a daily turnover of more than 10 million shares keep transaction costs low. As of Aug. 12, 2020, KRE controls net assets of $1.3 billion, yields 3.5%, and has gained nearly 15% over the past three months.
The stock continued its march higher Tuesday on above-average volume from an area of tight price consolidation. Those who anticipate further gains should think about setting a take-profit order near $48, where the shares encounter overhead resistance from a multi-year horizontal line. Guard against a sudden loss of momentum by placing a stop order somewhere below the April swing high at $40.