Banking stocks showed renewed signs of life on Thursday, with Regions Financial Corp (NYSE:RF) leading the charge — at least in terms of chart breakout cleanliness. Thursday’s rally in RF stock and other banking equities came on the back of an amalgamation of news flow, including hopes for corporate tax cuts under the Trump administration, as well as a bump higher in 10-year Treasury yields and a firmer U.S. dollar.
While I believe there are plenty of reasons to be cautious of this rally in bank stocks over the next few months, Thursday’s breakout in Regions Financial — for the time being, and until proven otherwise — is respect-worthy.
As such, active investors and traders should try out RF stock from the long side.
The market’s bears have been singing the same song for weeks now. They point to too-low realized market volatility as well as implied volatility, possibly increasingly stretched stock valuations in the near- to intermediate-term and a market rally that thus far may have mostly taken place on hopes of the Trump administration being able to implement some of its proposed changes.
To those bears, I say, “I hear thee!”
But because price is the only thing that has ever paid stock market participants, I also will remind those same bears that as long as price continues to push higher, it’s too early to leg into major bearish positions.
RF Stock Charts
For perspective, let’s start with the multiyear weekly chart of Regions Financial.
We see that as a result of the steep post-election rally last November, Regions broke out of the uptrending channel that had been in place since 2009. However, we see that from a momentum perspective — as represented by the MACD momentum oscillator at the bottom of the chart — this stock remains well-overbought.
This, coupled with a break higher out of the orderly multiyear uptrend, is reason to be cautious from this angle. A corrective phase in RF might be in the cards.
However, you shouldn’t just look at a stock from the vacuum of a single time frame. Instead, you should analyze across multiple time frames to get the best idea.
Looking at the daily chart, we see that RF stock, following an initially vertical rally after the 2016 election results, began to run out of steam in early December, then settled in to a tight sideways consolidation phase.
This consolidation phase came to an end on Thursday as RF stock rallied 3.45% and broke higher, cleanly closing above previous horizontal resistance around the $14.70 area.
From here, the stock’s next upside target in this time frame is around the $15.50-$16.00 area. Any notable bearish reversal would be a stop-loss signal and could also qualify Thursday’s breakout as a so called “pop and drop” move.
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