Trade of the Day: BankUnited (BKU)

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Volatility rose by as much as 20% through the middle of this week, but simmered down and was mostly flat Friday. Same with the S&P 500, which fell as much as 1.5% through midweek and finished flat.

It’s been that kind of a year: bursts of energy followed by trips to lie on the couch. Not even the extraordinary events of the eurozone and Greece, much less the sensational volatility in China, has moved the dial on U.S. equities.

As you can see in the chart below, which tracks the S&P 500 and the S&P 500 Volatility Index (VIX), both ambled around a bit midweek but ended the five-day stretch just about where they started.

This is just about the slowest market in my memory, and I’ve been on the case for about 30 years. I was wondering whether it was just my imagination, since your mind plays tricks. So, I turned to the great historical data analysts at Bespoke Investment Group to find out if this was true.

Turns out it is true.

They report that the first half of the year, at least, was one of the most uneventful in the past half-century. The chart below shows the S&P 500’s performance on a closing basis so far this year, with the red line showing where the index closed in 2014. In sync with this evidence, 2015 will go down as the first year in the S&P 500’s history in which the index was never up or down more than 3.5% YTD on a closing basis during the first half.

Furthermore, the S&P 500 is up just five basis points this year. Zzzzz. The table below, provided by Bespoke, lists the 10 years in which the S&P 500 traded closest to the unchanged level on a YTD basis during the first half of the year. Besides 2015, the only two other years in which the S&P 500 was never up or down more than even 5% during the first half of the year were in 2004 and 1993.

For each of the years in the table, Bespoke has included the S&P 500’s performance during the second half of the year. In the second half of each of the 10 years shown, the S&P 500 traded higher for an average gain of 6.01%. Compare the performance for those 10 years to all other years, which saw an average gain of 3.63%, with positive returns 62.3% of the time.

Eyeballing the list, the most similar to the present was probably 2004. In that year, the market managed to rise 6.3% over the rest of the year.

Yet, as you can see in the Bespoke chart above, in 2004 all of the gain for the year occurred in November and December. By then, people were so worn out by the flat grind lower that many missed the boat on the advance, which occurred after George W. Bush’s reelection in November.

If nothing else, you can see on the chart that when the market moved up over its downtrend in early November and hit new highs for the year, there was still plenty of upside remaining. Keep that in mind this year, as a similar circumstance may emerge.

This kind of analysis is one of the reasons I’ve got a full lineup of bullish plays in my Trader’s Advantage portfolio. One of my favorite sectors now and into the future is regional banks.

BankUnited (BKU) is a $3.7 billion regional bank based in south Florida. Like most regional banks, the stock has perked up along with rising government bond yields and expectations of higher rates and better margins.

I like an entry in BKU at current levels around $36 and change.

You can take some quick profits when BKU hits my near-term target of $37.95, or hold for longer-term gains. I recommend using a stop loss at $34.65 that’s good after 11 a.m. ET only to avoid getting caught in any early-trading volatility.

Jon Markman writes a daily trading newsletter, Trader’s Advantage, as well as CounterPoint Options, a service geared toward helping individual traders make steady, consistent profits with the VIX.


Article printed from InvestorPlace Media, https://investorplace.com/2015/07/trade-of-the-day-bankunited-bku-volatility/.

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