A Rotation into Financials, But is KRE Biting?

As mentioned yesterday, the Big Banks ETF (XLF) and Regional Banks ETF (KRE) are two of the weaker sectors. However, today we saw some money rotate into those sectors, with XLF rising over 1% and KRE rising marginally at .4%. Goldman Sachs (GS) cleared a key moving average.

Now some of the move in banks has to do with the Dollar, which firmed a bit after starting the week at yearly lows. But with the jobs report on tap and ahead of a long weekend, if you have vertigo looking at NASDAQ stocks, the fins could offer a solid risk/reward – assuming, that is, the economy truly has seen the worst. After all, banks get hit the most with the rise in loan delinquencies and bankruptcies.

Do you see what I see on the chart?

If you guessed 2 inside weeks, a gold star for you! Two weeks ago, the range was 37.49-40.56. The week thereafter, the range was 37.76 to 40.23. Thus far, this week’s range is 37.98 to 39.33.

As the range narrows and remains inside the ranges for the past two weeks, we can draw some conclusions. The first is that a move over 40.23, as we near the end of this short week, is positive. The second is that the short float is high given the bearish weekly phase, especially in contrast to the Dow, SPY and QQQs. The third is that regardless of the economic stats, with the jobs report coming up Friday, this sector might be one of the better risk/reward trades.

These days, finding a trade that you know right away if you are wrong and can see explosive moves if right, giving traders instant gratification – my eyes are here.

With that said, volatility remains a key to watch. After a reversal bottoming pattern on August 26th confirmed, even while NASDAQ runs, a move in VIX.X (the fear index) over the 50-DMA (Recuperation Phase), which is where it hovers now, still spells trouble.

  • S&P 500 (SPY): Another low volume trip to another new all-time high.
  • Russell 2000 (IWM): Support 157 Resistance Key 160.
  • Dow (DIA): Not a new all-time high but best close since February. 290 pivotal
  • Nasdaq (QQQ): 300 psychological support now. New highs again
  • KRE (Regional Banks): 38 key support 40 resistance.
  • SMH (Semiconductors): Blast off and support now 177
  • IYT (Transportation): Nice move up with airlines a focus here
  • IBB (Biotechnology): Trading range 130-137-once through probably a good buy
  • XRT (Retail): 50.00 key support
  • Volatility Index (VXX): Like VIX.X through 27.10
  • Junk Bonds (JNK): 105 support-risk appetite lives
  • LQD (iShs iBoxx High-Yield Bonds): Cleared back over the 50-DMA making 136.37 pivotal
  • GLD (Gold Trust): 180 support and maybe a buy there

Mish Schneider


Director of Trading Research and Education