SPDR KBW Regional Banking (ETF) (KRE) — I last covered KRE in the Trade of the Day on July 2, when I recommended readers buy the ETF under $43. But shares fell on fears of federal regulations and a pending interest rate increase by the Federal Reserve, as well as a general market correction.
According to the minutes of the latest Federal Open Market Committee (FOMC) meeting, the rate hike will probably occur in December. But given the long delay, the market has likely already digested this.
With national elections in sight, both political parties have railed against the big Wall Street banks, and some candidates have even vowed to break them up. These financial giants are also subject to global currency risks and have been hurt by the rising U.S. dollar. High regulatory and legal costs add to the reasons for investors to choose regional banks over global ones.
KRE provides a solid list of stocks that could meet investors’ needs. Its top 10 holdings are Bank Of The Ozarks Inc (OZRK), Western Alliance Bancorporation (WAL), BBCN Bancorp Inc (BBCN), First Niagara Financial Group Inc. (FNFG), Home Bancshares Inc (HOMB), Valley National Bancorp (VLY), Fulton Financial Corp (FULT), Cullen/Frost Bankers, Inc. (CFR), Simmons First National Corporation (SFNC) and First Citizens BancShares Inc. (FCNCA).
S&P Capital IQ rates KRE “overweight,” and Morningstar considers it a four-star fund. It has a low expense ratio of 0.35% and currently yields 1.68%.
KRE had been consolidating in a bullish saucer. As expected, that pattern broke to the upside in June, forming a base line at about $45. It fell to a low of $35.01 on Aug. 24, but quickly recovered, advancing again to the line at $45.
This line is now a support/resistance line, and a high-volume break above it would trigger a strong buy signal. Therefore, buy KRE on a break above $45.50 as a long-term investment in the regional bank sector.