Regional Bankers Are No Fools

04/01/2014 10:00 am EST


Thomas Aspray

, Professional Trader & Analyst

Although regional banks have been one of last year’s stellar performers, they have hit a rough patch recently, and MoneyShow’s Tom Aspray shops for potential buy candidates in this promising group.

It was an impressive way to end the quarter as the market internals were strong for the second day in a row. The strong A/D readings last Friday indicated bullish action on Monday with the Dow Transports and small caps leading the way as they were up 1.6% to 1.8%.

The NYSE Advance/Decline, as well as the S&P 500 A/D line both closed at new highs on Monday, which supports even higher prices. The completion of March’s trading range in the S&P 500 projects a move to the 1925-1934 area. The McClellan oscillator has also broken the downtrend I mentioned yesterday and this is another bullish sign.

The regional banks had a sharp setback over the past six days but closed strong on Monday, and it looks as though their correction is over. The current interest rate environment does favor the regional banks. The technical outlook suggests the regional bankers will be successful in increasing their earnings as we head deeper into 2014. If you do not have a regional bank in your portfolio, you may look back at this April 1st with some regrets. In addition to the previously recommended regional bank stocks and their ETF, there are still opportunities for investors.

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Chart Analysis: The SPDR KBW Regional Bank ETF (KRE) dropped 5.6% from its high at $42.79 and just reached the minor 38.2% Fibonacci retracement support at $40.45.

  • For the 2nd quarter, the pivot stands at $40.29 with the 50% retracement support and starc- band at $39.73.

  • The 20-week EMA is at $39.65 with the uptrend (line a) and the weekly starc- band in the $39 to $38.23 area.

  • The relative performance broke through resistance, line b, on the recent rally and turned up sharply on Monday.

  • The weekly RS line (not shown) is turning up from its WMA.

  • The daily OBV made an impressive new high on March 21 before dropping back below its WMA.

  • The OBV has turned up and a move back above its WMA would be positive.

  • There is initial resistance now in the $42 area, and once above the recent high, the monthly projected resistance stands at $44.79.

First Horizon National (FHN) had a low of $11.95 last Friday and gapped slightly higher on Monday.

  • The daily chart shows that good support, line d, has been tested.

  • The uptrend, line e, is at $11.84 with the daily starc- band at $11.74.

  • The quarterly pivot is much lower at $11.20.

  • The relative performance closed back above its WMA on Monday and did confirm the recent highs.

  • The volume increased Monday as the OBV has turned up from support at line g.

  • The OBV is very close to moving back above its WMA and is close to an AOT buy signal.

  • There is next resistance at $12.59 to $12.73.

  • The monthly projected pivot resistance is at $13.30.

NEXT PAGE: 2 Regional Bank Picks


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Umpqua Holdings Corp. (UMPQ) is another previously recommended bank that traders love to short as its short ratio has risen to 24.6. This means that at the average volume, it would take over 24 days to cover the short position.

  • UMPQ has just tested the 1st quarter pivot and for the 2nd quarter, the pivot is at $18.15.

  • The relative performance has turned up sharply and another higher close should move the RS line above its WMA.

  • The RS line has key resistance now at line b and the weekly RS (not shown) is above its WMA.

  • The daily OBV broke through resistance, line d, in early March.

  • The OBV has held well above good support at line e.

  • There is next resistance now in the $19-19.18 area.

  • On a move above the March high at $19.44 the monthly projected pivot resistance is at $20.61.

Prosperity Bancshares (PB) is a $4.38 billion Texas bank holding company with a current yield of 1.50%. It has a short ratio of 11.6.

  • The stock hit a high of $67.68 just a week ago and triggered a HCD buy signal on Monday.

  • The daily chart shows the completion of its trading range, lines f and g, in early 2014.

  • The low last Friday at $64.25 was just below the new quarterly pivot at $64.45.

  • The minor 50% Fibonacci retracement support from the early February low is at $63.56.

  • The daily relative performance has moved back above its WMA and has key resistance at line h.

  • The weekly RS line (not shown) is above its WMA.

  • The daily on-balance volume (OBV) has been acting stronger than prices and has turned up from its WMA.

  • The OBV broke through resistance, line i, over a month ago.

  • If the resistance at $67.14 to $67.68 is overcome, the monthly projected resistance is at $72.60.

What It Means: The futures are higher again in early trading and the regional banking stocks appear to be one of the market leading groups. I recommended them in February and also featured two regional banks in the recent trading lesson, 6 Picks in Seasonally Strong Sectors.

Those who are not already long the SPDR S&P Regional Banking (KRE) or the previously recommended regional banks could look to buy Prosperity Bancshares (PB).

How to Profit: For Prosperity Bancshares (PB), go 50% long at $65.84 and 50% long at $65.11, with a stop at $63.27 (risk of approx. 3.4%).

Portfolio Update: For SPDR S&P Regional Banking (KRE), should be 50% long at $38.63 and aggressive traders who are already long could add 50% long at $41.16, with a stop at $39.83.

Should be 50% long First Horizon National (FHN) at $12.13 as per the 3/19 tweet. Raise the stop now to $11.83.

For Umpqua Holdings Corp. (UMPQ), should be 50% long at $17.15 and 50% long at $16.96 with a stop now at $17.23. On a move above $19.02, raise the stop to $17.79.

For Capital City Bank Group (CCBG) should be 50% long at $12.88 and would use a stop now at $12.41.

Cancel the open order in PacWest Bancorp (PACW) and in Western Alliance Bancorporation (WAL) though both also look positive technically.

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