The market was thrown its first 1% curve ball since before the last election yesterday, as interest rate concerns combined with uncertainty about whether a health care bill would come to a vote later this week.
The selloff centered on the financials, especially the SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE), which dropped 5.4% one of its largest declines in history. Shares of Conagra Brands Inc (NYSE:CAG) were slightly lower ahead of their earnings report to be released tomorrow and finally Sears Holdings Corp (NASDAQ:SHLD) chart is seeing some interest chart movement as the company drops some bad news on the market this morning. We’ll look at all three in today’s three big stock charts.
SPDR KBW Regional Banking (ETF) (KRE)
The regional bank exchange-traded fund fell by more than 5% yesterday, as the yield curve concerns caused profit-takers to ring the register and take some money out of the sector.
The move took the KRE shares below their 50- and 100-day moving averages, a signal that there could be some further technical problems. That said, the ETF also shot right into technically oversold territory, indicating that a sharp bounce is likely to develop in the short-term.
More interesting is our studies that looked into the response of the shares after they lose more than 5% in one day. Since its inception, the KRE shares average a return of 2.4% one month later and 8.4% 50 trading days later. This performance is compared to the average at-any-time performance of 1% after 50 trading days. In other words, we expect to see some buying on this dip.
Conagra Brands Inc (CAG)
Conagra will announce its quarterly results on Thursday ahead of the open. CAG stock was little change on Tuesday as the rest of the market gyrated lower.
The stock is trading just above its 50-day moving average, which has been trending higher. The bullish momentum suggests that Conagra stock should move higher on any positive earnings results.
Historically, the last three years have seen CAG beat estimates ten out of twelve earnings announcements. Not surprisingly, Conagra stock has also been trading higher a week after 10 of the 12 earnings releases by an average of 3.5%.
A 3.5% move in Conagra shares would break the stock above $42, a round-numbered resistance level that has been softly rejecting the shares over the last month.
The 3% decline over the last week is a great setup for those looking to go long CAG shares ahead of the announcement as it moved the stock away from overbought territory and suggests that traders were selling just a little bit of the rumor, an action that often results in a “buy the news” rally after the earnings release.
Sears Holdings Corp (SHLD)
Sears stumbled out of the gate this morning on news that the company doubts its ability to return to profitability. SHLD shares are trading 13% lower in the early trade.
Sears stock went from trying to break through the $10-level, which had been acting as resistance, to looking at it’s 50-day moving average for potential support.
Currently, the 50-day moving average for SHLD is trading at $8.17, the level that shares almost immediately grabbed for support in the first five minutes of trading. This support indicates that the technical traders and quants are still looking at Sears shares as “tradable”.
What to watch for? SHLD currently has a short interest ratio of 10.2. This higher short interest ratio means that there are a large number of short positions that will want to close out on this 13% move with some profits. These shorts have to buy the shares back, which means some of the initial support this morning may be attributed to short covering.
Bottom line, watch the 50-day on Sears over the next two trading sessions as the shorts likely shut down winning trades. Failure to hold this level will open a new technical move to $6.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
