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Bank Indices Set Multi-Year Highs Pre-Earnings

Stocks in this article: PHM ABAQ KRE ^HGX ^BKX

There is only one buy-rated home builder according to ValuEngine and that's PulteGroup (PHM) ($18.59), which mirrors the performance of the housing index. Pulte has a weekly value level at $17.92 with a quarterly pivot at $19.37 and monthly risky level at $21.69.

Recent housing data has been positive including, the National Association of Home Builders Housing Market Index, which rose by eight points to 52 in June, above the neutral 50 mark for the first time since April 2006. The NAHB projects that total housing starts would top the million mark this year for the first time since 2007. This progress has been trumped by the higher interest rates.

It appears that investors like bank stocks, both big and small in this higher yield environment.

The America's Community Bankers Index (ABAQ) (210.96) set a new multi-year high at 210.96 on July 5 and is now up 23.6% year-to-date. Even a better performance has been logged in by the PHLX KBW Banking Index (63.94) is now up 24.7% year to date with the July 5 multi-year high at 63.94.

Over the next two weeks most banks will report their second quarter earnings reports. I question whether earnings justify bank leadership at this time given tight net interest margins and slow loan growth. In the first quarter 2013 total real estate loans were down $36.7 billion sequentially. Comprising this reduced lending, residential mortgages on the books of the banks declined $18.3 billion, nonfarm/nonresidential real estate loans fell about $300 million, construction and development loans declined $2.1 billion, and home equity loans fell $16.0 billion.

All 24 components of the money center/regional bank index are rated hold, which indicates that revenue misses or cautious guidance could end this leadership.

On July 2 I wrote, Trading Buy Rated Community Banks where I provided my buy-and-trade strategies for six buy-rated community banks. In addition to these specific banks consider the ETF SPDR S&P Regional Banking (KRE) ($35.93), which consists of both regional banks and community banks. The daily chart shows an overbought condition with the ETF above its 21-day, 50-day and 200-day simple moving averages at $33.29, $32.63 and $30.14. My monthly value level is $34.10 with a weekly pivot at $35.17 and semiannual risky levels at $36.15.

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