Regional Bank Stocks Look Set for a Move Higher in 2020

With much of the global investment community's attention being paid to the talks in Davos, the uptick in the U.S. regional banking sector has gone fairly unnoticed. Bullish chart patterns are popping up across the sector, and they appear to be making a strong case for increasing exposure to regional bank stocks in 2020. In this article, we'll take a closer look at several key charts that are leading the way and try to determine how traders will want to position themselves over the weeks and months ahead.

SPDR S&P Regional Banking ETF (KRE)

The psychological resistance level near $55 on the chart of the SPDR S&P Regional Banking ETF (KRE) shown below acted as a strong barrier to a move higher for much of 2019. With that said, the breakout and subsequent retest of trendline in November changed the storyline and is now a clear sign that the bulls are in control of the momentum.

From the perspective of an active trader, it is interesting to note how the rise in price over the past couple of months has triggered a bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle). This common long-term buy signal will likely be used as confirmation of a move higher and could even be used to mark the beginning of a prolonged uptrend. From a risk-management perspective, stop-loss orders will most likely be placed below $55 or $53.36 in case of a surprise shift in underlying fundamentals.

Chart showing the share price performance of the SPDR S&P Regional Banking ETF (KRE)
StockCharts.com

SVB Financial Group (SIVB)

The top holding of the KRE ETF that could grab the attention of active traders over the weeks to come is SVB Financial Group (SIVB). Taking a look at the chart pattern below, you'll notice that the horizontal trendline coinciding with the 200-day moving average looks very similar to the KRE chart shown above. The recent surge in buying pressure has also triggered a bullish crossover between the long-term moving averages, which suggests that the stock could be poised to make a move higher over the course of 2020 and that this could be the best buying opportunity of the year.

Chart showing the share price performance of SVB Financial Group (SIVB)
StockCharts.com

Citizens Financial Group, Inc. (CFG)

Another top holding of the KRE ETF that traders will likely want to add to their watch lists is Citizens Financial Group, Inc. (CFG). As you can see from the chart, 2019 was a year of consolidation for holders of Citizens Financial shares. The recent close above the dotted resistance levels suggests that the days of sideways momentum could be over and that a new long-term uptrend could just be getting underway. Based on the chart, most traders would likely set stop-loss orders below one of the dotted trendlines or the 200-day moving average ($35.63), depending on risk tolerance and investment horizon.

Chart showing the share price performance of Citizens Financial Group, Inc. (CFG)
StockCharts.com

The Bottom Line

During times like this week, when the investment community's attention is on the billionaires and corporate influencers such as those in Davos, much of the focus tends to spill into the mega-cap players of the financial sector. As the charts above suggest, the niche segment known as the U.S. regional banking sector could actually turn out to be a better bet when we look back at performance at this time next year.

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

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