One of this year’s favored rising rates plays, the SPDR S&P Regional Banking ETF (NYSEArca: KRE), is in the midst of a solid 90-day stretch and that is without the benefit of higher Treasury yields.
In fact, 10-year Treasury yields have stumbled 7.1% over the past 90 days while KRE is up 5.7% over the same period. Regional banks cater toward local retail customers, small- and mid-sized companies. Consequently, there is a certain type of customer concentration in specific markets, but the customer base won’t be the same across multiple regional banks. [Regional Bank ETF Nears New 52-Week High]
KRE, home to $2.4 billion in assets under management, could be poised to deliver further near-term upside as the fund has recently been consolidating in a tight range in the high $37 to $38.50 area.
Deron Wagner of Morpheus Trading Group notes KRE may be in the early stage of forming what is known as a base on base chart pattern.
To stoke fresh buying KRE, likely needs to clear $39 on strong volume. The base on base pattern is noteworthy because “KRE climbed 27% after clearing a cup-with-handle base in January, consolidating a couple of times on its way to a high 37.72 in August. It’s since formed a flat base, “ reports Doug Rogers for Investor’s Business Daily.
Fundamentally speaking, some regional banks, including some found in KRE, are just starting to transition from growth backed by tapping reserves to growth backed by better lending and margins on improving rates. That could be a sign the impact of higher rates is just starting to be felt by regional banks.
However, regional bank stocks and the ETFs that hold them are less volatile and risky than their national counterparts because of a lack of global exposure. Additionally, few if any regional banks have been caught regulatory and legal melodrama on par with the likes of Bank of America and J.P. Morgan Chase (NYSE: JPM). {Regional Bank ETFs Under The Microscope]
SPDR S&P Regional Banking ETF
ETF Trends editorial team contributed to this post.