NEW YORK ( TheStreet) -- A week ago I wrote, Bull Market Will End Without Big-Bank Leadership and on that day the PHLX KBW Banking Index (BKX) stayed above its 50-day simple moving average at $55.78. This week the BKX had what technicians call a breakout as the March 15 high at $57.60 was taken out to the upside. Wednesday's high at 58.85 was just above the April 2010 high at 58.81. This is a story where technical momentum has trumped overvalued fundamentals.Traders and investors considering following the fundamentals and technicals may want to consider the more risky smaller community banks. The America's Community Bankers Index (ABAQ) is lagging the BKX and remains below its March 26 high at 190.57.
The number of buy rated banks continues to decline. Among the 133 publicly-traded community banks in the northeast only one has a buy rating according to ValuEngine. Among the 159 banks in the southeast only ten have buy ratings. Among the 72 in the Midwest only five are rated buy or better. Among the 87 banks in the west only five have buy ratings. Among the 43 banks in the southwest none have buy ratings. Among the 166 savings and loans only eight have buy ratings. Difficulty maintaining a buy rating is a sign of stress in earnings related data. Only two of the seven buy rated community banks I profile today beat EPS estimates.