Wednesday after the market closed, it was announced that the for the first time all financial names that the Fed monitors passed their stress tests. This was followed by a slew of announcements from those institutions about stock buybacks and dividend hikes. Thursday morning will be full of discussion in the financial punditry about all of the big financial companies and which is the best.
Traders will be pounding their chests about the profits in their holdings as some stocks have moved as much as 3% or more overnight. The broad based financial ETF, Financial Select Sector SPDR (NYSE:XLF), is up nearly 2% in pre-market trading and ready to test the March highs. No doubt there is opportunity there. But the smaller regional banks may be where there is more opportunity.
The chart above explains why. While the large banks and financials are breaking out of a range, the smaller regionals are not….. yet.
They have been consolidating since March and pre-market price action shows the SPDR S&P Regional Banking (NYSE:KRE) still short of breaking that range. This ETF did come out of an expanding wedge in November, and moved higher. The move stalled at the target and fell back to consolidate. A break of this consolidation to the upside would give a target to 68. That is big potential. Watch the 56 price level as a possible entry point.
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