It’s About Time: Regional Bank ETF is Breaking Out

After what feels like an eternity (it really wasn’t), the SPDR S&P Regional Banking ETF (NYSEArca: KRE), the largest regional bank ETF, is breaking out.

Proving how important higher interest rates are to regional banks, 10-year Treasury yields jumped 4.1% to 2.4% last Friday, aiding an almost 2% gain for KRE, helping the ETF close at its highest levels since October 2007. KRE accomplished that feat on volume that was nearly 72% above the daily average, so it is not a stretch to say a long-awaited breakout has arrived for the ETF.

A rising interest rate environment will throw a wrench into the financial markets. Nevertheless, bank-related exchange traded funds could weather the storm as financial firms have positioned ahead of the potential rate changes.

Captain John Charts notes KRE’s point and figure chart has a bullish price objective of $53, or 21.4% above where the fund closed on Friday. Predictably, KRE’s breakout is coinciding with one for 10-year yields, helping drive the ETF’s recent out-performance of the S&P 500.

“From a relative strength perspective, the Regionals are banking on continued out performance based on the Head & Shoulder breakout vs. the S&P 500,” according to Captain John Charts.

KRE’s sensitivity to interest rates is well known. The ETF rose just 2% last year after surging 47% in 2013 when yields spiked. KRE’s holdings have an average beta of +0.44 to moves in the US 10 Year Treasury.