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Regional Banks Spike Higher On Passing Fed's Stress Test

NEW YORK (TheStreet) -- The KBW Bank Index (^BKX) saw 19  of its 24 regional bank components subjected to the Federal Reserve stress tests mandated by the Dodd-Frank Act. Zions Bancorp (ZION) was the only index component to fail the test when results were released Thursday. Eleven other financial companies not in the banking index each passed the stress test.

Among the 24 regional banks in today's 'Crunching the Numbers' table four bank stocks traded to new all-time intraday highs and three came close in reaction to the results. This winners list included 'too-big-to-fail' JPMorgan (JPM) which almost set a new high, and Wells Fargo (WFC) which set a new high.

In my opinion strength above prior all-time highs set in February 2007 is not justified by the status of the banking system. The bank index is up 5% year-to-date while the Housing Index (^HGX) is down 2.7%. The housing market is a lifeblood of the bigger banks and mortgage applications are weak as is recent data on housing starts. The big banks have reduced headcount in the mortgage operations which implies that they do not see an improved housing market anytime soon.

Courtesy of MetaStock Xenith

The weekly chart for the housing index is extremely important, and it shows that the index ended last week negative. The index closed below its five-week modified moving average at 202.57 on Friday with its 12x3x3 weekly slow stochastic at 75.06 declining below 80.00. This index is now below its 61.8% Fibonacci retracement at 202.05. The downside is to the 50% retracement at 173.8 which will likely line up with the rising 200-week simple moving average now at 138.96.

On March 19 I wrote, Is It Time to Sell Homebuilder Stocks? My theme was to sell strength in homebuilder stocks and the performance of KB Home (KBH) and Lennar (LEN) after releasing positive earnings was right on this script. KB Home traded as high as $19.44 on March 19 following its earnings release then closed at $17.79 on March 21. This weekly close was below its 200-day SMA at $17.94 and below its five-week MMA at $18.42 resulting in a negative weekly chart. Lennar followed KB higher and traded as high as $42.72 on March 19 the day before releasing its positive earnings. Lennar ended the week at $39.57 below its 50-day SMA at $40.42 and below its five-week MMA at $40.46 also with a negative weekly chart.

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