Monday, July 8, 2013

KRE Regional Banking Index Weekly Chart

The KRE clearly shows the results of two weeks of media pumping for the regional banks. Traders are tripping over each other to buy at any price. Note the huge move higher over the last two weeks. The rising wedge was about to play out to the downside but the big up in yields has traders buying the banks figuring that the 2-10 spread will allow juicy profits for weeks, months and years ahead. However, as shown by Keystone's 2-10 Spread Indicator, the spread is not yet at the magic threshold of 255 basis points. If the 10-year yield moves above 3%, the traders buying the banks will be correct since the carry trade will be fully in favor of the banks. But if the 10-year yield stays at current levels and drifts lower, this recent move into banks will run out of gas.

The chart is negatively diverged for the MACD histogram, stochastics and money flow, with overbot RSI and stochastics, however, the move over the last two weeks has upside momo.  Projection is some flattening and sideways action for price at these levels with the momo creating some additional, but limited upside, followed by rolling over for price as the weeks play out. The lower trend line should come back into play in the weeks or couple months ahead. This information is for educational and entertainment purposes only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.

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