It is not surprising that the United States financial sector is dominated by some of the largest and best-known financial institutions in the world. While most investors focus their attention on these giant companies, it might be time to consider a different approach to investing in this important sector.
As you will read below, chart templates on region-specific banks could offer lucrative buying opportunities with well-defined risk characteristics. We will be looking at charts for the entire regional banking sector and trying to determine where active traders will be looking to position themselves over the coming weeks and months.
Key points to remember
The SPDR S&P Regional Banking ETF (KRE)
As mentioned above, regional banking companies are not as well known as their larger national counterparts. Many active traders have to rely on analyzing the top holdings of the main exchange traded funds (ETFs) such as the SPDR S&P Regional Banking ETF (CREATE) to identify investment ideas for their portfolios. In the chart below you can see that the upward momentum in the latter part of 2020 was enough to trigger an uptrend crossing between 50 days and 200 days moving averages. This long-term buy signal is often used by technical traders to mark the start of an extended upward move.
As confirmation of the move, followers of technical analysis will likely want to note the close above the 52-week highs and the recent retracement to the 50-day moving average. Bullish traders will likely look to place buy orders as close to $52.13 as possible and hedge against a shift in market sentiment by placing stop loss orders less than $45 or $41.10, depending on tolerance and investment outlook.
Bank of the First Republic (FRC)
As one of the leading holdings of the KRE ETF, First Republic Bank (FRC) will likely be one of the first companies to appear on active traders’ radars. In the chart below you can see that the price traded over a period of consolidation for much of 2020. The strong rebound in its 200-day moving average was a clear indication that the bulls were taking control of the momentum and a strong signal that prices were about to move higher.
The heightened buying interest at the end of 2020, combined with the successful test of its 50-day moving average, is likely used as confirmation of an upward move. Based on the chart pattern, followers of technical analysis will most likely be looking to place buy orders as close to $141.36 as possible. From a risk management perspective, traders will likely seek to hedge against a sudden selloff by placing stop-loss orders below $129 or 118.74, depending on risk tolerance.
KeyCorp (KEY). Looking at the chart below, you will notice that the surge in buying interest at the end of 2020 triggered a bullish cross between the 50-day and 200-day moving averages. As stated above, the bullish crossover is commonly used to mark the start of major uptrends.
The recent retracement towards the 50-day moving average is important for active traders as it provides a buying opportunity with well-defined risk/reward characteristics. Buy orders will likely be placed near current levels, while stop-losses will be placed below $16.52 or one of the other nearby support levels to protect against a downside.
Regional banking stocks are often overlooked in favor of their larger and more well-known national peers. However, based on the charts discussed above, the end of the extended periods of consolidation suggests that a new long-term uptrend is just beginning and could present traders with lucrative risk/reward setups.
At the time of writing, Casey Murphy did not hold any positions in any of the assets mentioned.
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