The Regional Bank SPDR (KRE) was a boon to the market in late July and early August, but under performed the market from early August to mid November. In contrast, the Financials SPDR (XLF) performed in line with the market as it went on to new highs in September and October. While smaller regional banks were allowed to shut down, the big banks that dominate XLF were deemed too big to fail. Both XLF and KRE advanced on Monday, but I was more impressed with price action in KRE.
First, let's look at the XLF chart. With a bounce over the last few weeks, the overall trend remains up as the ETF held support in the 13.5-14 area. However, XLF is clearly not keeping pace with SPY, which exceeded its October high yesterday. Nevertheless, the short-term trend (since early November) remains up. I am marking short-term support at 14.5. A break below this level would reverse the short-term uptrend and target a move back to the support zone. Such a development would weigh on the overall market.
With a bounce in November, the Regional Bank SPDR ultimately held support around 20 for the third time since early September. Believe it or not, I am trying to view this chart with bull-tinted glasses because the overall market remains medium-term bullish. This means bullish resolutions are still more likely than bearish resolutions. Looking at price action since July, we can see a surge and then a large falling wedge. Notice that the wedge retraced around 62% of the prior surge. Both the pattern and the retracement are typical for corrections within larger uptrends. Yesterday, KRE surged over 3% on the highest volume of the month. Admittedly, this stock has been a tough call lately, but I would give the bulls the edge as long as last week's lows hold.
