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A Look At Regional Banking

02/20/14 04:14:50 PM
by Koos van der Merwe

Having a look at regional banks for a possible buy.

Security:   KRE
Position:   Buy

When we look at a bank, we always think of the big banks, like JP Morgan Chase, Wells Fargo, Citi Group and Morgan Stanley. But what about the regional banks, those small banks throughout the country? Yes, there are a number of regional bank ETFs. The preferred list of 6 ETFs are: KRE, SPDR Regional Banking; IAT iShares Dow Jones US Regional Banks Index Fund; KBWR, KBW Regional Banking Portfolio; KRU, ProShares Ultra KBW Regional Banking; RKH Market Vectors Bank and Brokerage ETF; KRS ProShares Short KBW Regional Banking. There may be newly issued ETF's not shown above. In this article, I shall only be looking at KRE, the SPDR Regional Banking.

Figure 1. Weekly chart of KRE with Elliott Wave count.
Graphic provided by: AdvancedGET.
The chart in Figure 1 is a weekly chart of KRE showing how the price moved from $14.53 in March 2009 to $40.90 by December 2013. The Elliott Wave count is suggesting that the ETF is starting to move into a Wave 5 of WAVE 5. The RSI index however was in an overbought position and gave a divergence sell signal, that is where the ETF rises to higher levels, while the RSI moves to lower levels. A look back at previous RSI signals does show that buy signals were triggered when the index fell below and then rose above the 50 horizontal line. The RSI has not fallen below the 50 horizontal line suggesting that the Wave 4 of WAVE 5 may not be completed, and that we could expect further weakness.

Figure 2. Daily chart for KRE.
Graphic provided by: AdvancedGET.
Looking at the daily chart we can see that the RSI indicator has given a buy signal on February 4th. More conservative investors can wait for a buy signal to be triggered when the price moves above the upper band of the JM Internal Band. The JM Internal Band indicator is a 15 period simple moving average offset by 2% positive and 2% negative.

Yes, I would be a buyer of KRE at present levels, with a resistance target at $41.24, the high reached on January 22nd, 2014.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
Phone # for sales: 6042634214
E-mail address:

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