Shares of regional banking stocks such as Regions Financial Corp (NYSE:RF) had a good couple of green days thus far this week and look set to continue higher over the near to possibly intermediate term. RF stock is higher by about 9% for the year, all of which thanks to a strong rally in the broader financial sector since early September. The question now is whether these stocks can break above the year-to-date highs
One of my fourth-quarter themes that I laid out for clients in early October and continue to reiterate is that of a continued bid in financial stocks due to a bid in interest rates. In other words, my bullish call on banks is not a bottom up analysis (although I do see continued profit growth for them) but rather a top down analysis.
The SPDR KBW Regional Banking ETF (NYSEARCA:KRE), despite the rally since early September, has only just about flat performance for 2017 but has consolidated constructively over the past month or so.
Regions Financial, with about 2.9%, is currently the third-largest holding of the KRE ETF. For some perspective I plotted the above chart, where I pegged RF stock versus the KRE ETF and as can be clearly seen, RF stock has been outperforming recently, so much so that it led to a breakout (above the black horizontal).
In other words, RF stock is a strong stock within and relative to its group. The group also looks constructive but has yet to break out to new highs, which is to say that RF stock may be a leading indicator of things to come.
RF Stock Charts
Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week
On the multiyear weekly chart, we see that RF stock has spent most of the year in a sideways consolidation phase and that a breakout above there could lead to a next leg higher.
Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day
On the daily chart, we see that the strong September rally pushed RF stock above its intermediate-term simple moving averages, which then led to a consolidation phase and an up-gap breakaway in October. This up-gap from October 20th continues to hold as support and an important psychological spot on the chart in the near-term.
Such gaps in charts often times are important tells about investor psychology in a stock and offer high-probability opportunities in all time frames, including intraday. For those unfamiliar with the power of gaps I am holding a special webinar on Nov. 15 for InvestorPlace readers. Register HERE.
Yesterday, RF stock completed a bullish reversal according to my proprietary B2 Reversal Indicator, which confirms the lows from Monday around the $15 mark as important.
Active investors could now look to buy RF stock for a breakout attempt past the $16 area and toward $17 as a next upside target. Any strong bearish reversal that breaks the stock back below $15 would be a stop loss signal for the trade.
Check out Anthony Mirhaydari’s Daily Market Outlook for Nov. 15.
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