Regional banks live far-out on the financial sector risk curve.
These companies take deposits and invest in fixed-rate assets—leaving them open to interest rate risk, and more specifically, duration risk.
When the Fed aggressively raised rates a few years ago, the market value of bank assets plummeted. At the same time, customers were withdrawing funds to earn higher yields elsewhere.
Massive losses were realized, and some big regional banks didn’t make it.
But that was over two years ago. Rates have stabilized, and the balance sheet issues have improved.
More importantly, Regional Banks have undergone a prolonged bottoming process, and a new primary uptrend is underway.
And just look at what money-center banks and international banks are doing. They’ve been some of the best stocks around the world.
Whether you look at Europe, Latin America, or Asia-Pacific, banking stocks sit near the top of every leaderboard.
Do you want to make the bet that Regional Banks won’t follow their peers?
Do you think this unprecedented performance gap between big banks and little banks will persist?
I definitely do not.
I believe small and mid-sized US banks are due for a major catch-up move.
And hasn’t that just been the story for the entire market lately? The bad stuff is catching up with the good… and not the other way around.
For example, the big boys in the Financial Sector $XLF just broke out to all-time highs, and so did our Big Six Bank Index. The laggards— such as regional banks —should follow. It’s that simple.
And some are already doing it— breaking out of multi-year bases and making new highs.
Let’s talk about the ones we’re buying now.
Here’s our Regional & Community Banks Leadership Scan:
As usual, we’re going to lean into the relative strength in this group. This isn't a space where you want to buy and hold a basket like KRE or QABA. There are simply too many regional banks… and too many bad regional banks, at that.
We’re looking to buy big bases and leadership.
Like this…
Our first setup is the Alabama-based $22B “super” regional bank. Here’s Regions Financial Corp $RF:
RF is on the cusp of completing a massive base. The stock is pressing on a key level of interest defined by the 61.8% retracement — a level that has capped several advances over the past three years.
A close above 25 flips the risk to the upside and puts the ball back in the bulls’ court.
We want to be buyers of a breakout in RF above 25, targeting the pre-GFC highs of 39.
(If you're not a member of ASC Premium and want access to the trade ideas from this post, join us risk-free.)
You need to have a subscription to access this content in full.
Log in or subscribe today to unlock new features and receive Member Benefits.
