Regional Banks: Here's What the Charts Are Telling Us

Let's take a close look at the KRE, the SPDR S&P Regional Banking ETF.

The SPDR S&P Regional Banking ETF (KRE) has attracted a lot of interest and volume in recent days. Trading volume has soared to record levels as traders and investors have quickly decided to "sell first and ask questions later" on the heels of the news about SVB Financial Group (SIVB)  , Signature Bank (SI) and First Republic Bank (FRC) .

With regional/community banks representing something like 50% of U.S. industrial lending and about 60% of U.S. residential mortgage lending we should all be interested. Let's review the condition of the charts and indicators to see what might be the "next shoe to drop." 

In this daily bar chart of KRE, below, I can see that the ETF found buying interest (a.k.a. "support") in the $56 area a number of times from June and July and then again in December. However, this area was broken in recent days as the stock plunged.

Trading volume soared ten-fold as nearly everyone wanted to get out. The slopes of the 50-day and 200-day moving average lines were already negative but they weakened further.

The On-Balance-Volume (OBV) line dove to a new low for the move down and reinforced the observation of aggressive selling. The Moving Average Convergence Divergence (MACD) oscillator turned bearish in early March when it moved below the zero line. 

 

In the weekly Japanese candlestick chart of KRE, below, I see a pretty dramatic-looking top pattern (hindsight is great). Prices made a large topping pattern the past two years. The neckline along the $56 area finally broke this month. The slope of the 40-week moving average line is negative.

 

The weekly OBV line shows weakness from the first quarter of 2021. The MACD oscillator has been bearish since early 2022. 

 

 

 

In this daily Point and Figure chart of KRE, below, it is projecting a potential downside price target in the $20 area. 

 

 

 

In this second Point and Figure chart of KRE, below, I used weekly price data. Here it is projecting a $20 price target. Notice that this chart does not show any price action in the $42-$49 area like the daily chart above. 

 

 

Bottom-line strategy: KRE shares will likely be buffeted by headline news about the banking sector so we could see sharp up and down moves in the days ahead. The Point and Figure charts suggest risk down to the $20 area. Ouch.

 

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