Regional Banks Falling Into the Bear's Clutches
Bloomberg News
Regional banks are center stage when it comes to providing funding to small businesses and lending to the housing market on Main Street.
When you look at the iShares U.S. Regional Banks ETF (IAT) - Get Report , BB&T Corp (BBT) - Get Report , M&T Bank (MTB) - Get Report , PNC Financial (PNC) - Get Report , SunTrust (STI) - Get Report and U.S. Bancorp (USB) - Get Report are the five largest holdings of the exchange-traded fund which has 58 components and does not include the four "too big to fail" money center banks.
All five banks are getting ready to report earnings this month, and all five have negative weekly charts showing the Bear is just around the corner.
The Federal Reserve remains reluctant to raise rates which keeps pressure on net interest margins. The Federal Deposit Insurance Corporation has been concerned that some banks have stretched for yield including making loans to oil and gas producers. Some of these loans have become noncurrent resulting in the first increase in reserves for losses since the Great Credit Crunch ended.
A key real estate loan category for regional banks is home equity line of credit. HELOC lending has been declining since the end of 2007. Even with home prices on the rise since March 2012, this loan category has been sliding.
Here's the latest chart for the S&P Case-Shiller home price indices.
The benchmark 20-city composite is up 5.4% year over year in April, up 1.1% sequentially. From the mid-2006 peak this index is down just 12% and its up 39% from its cycle low set in March 2012.
Despite the strong rebound in home prices HELOC loans were down 1.7% sequentially in the first quarter to $457.5 billion. Year-over-year HELOC lending is down 5.5% as home prices rise. This is a clear sign that the regional banks are reluctant to lend. Since the end of 2007 HELOC loans are down 24.7%.
Here's the weekly chart for the Regional Bank ETF.
Courtesy of MetaStock Xenith
The weekly chart for the Regional Banks ETF is negative with the exchange-traded fund below its key weekly moving average of $32.61 and below its 200-week simple moving average of $31.96. The weekly momentum reading is projected to decline to 49.69 this week down from 59.79 on July 1.
The ETF is trading under the influence of a key level of $31.59, which is in play until the end of July.
Investors looking to reduce holdings should consider selling strength to $33.11, which is a key level on technical charts until the end of September.
Here's a scorecard for the five regional banks.
Here's the daily for BB&T Corp.
Courtesy of MetaStock Xenith
BB&T had a close of $34.22 on Tuesday, down 9.5% year to date and in correction territory 18.3% below its multiyear high of $41.90 set on July 23, 2015. The stock is up 14.3% from its 2016 low of $29.95 set on Feb. 11.
The daily chart shows the Fibonacci retracements from the July 23 high to the Feb.11 low. The stock was near its 2016 high pre-Brexit of $37.01 set on June 6. BB&T traded as low as $32.85 on June 27 just above its 23.6% retracement of $32.77. The post-Brexit rebound had the stock back above its 38.2% retracement of $34.52 trading as high as $35.62, below its 50% retracement of $35.92. The stock closed Tuesday below its 38.2% retracement and well below its price gap to its Dec. 31 low of $37.74.
Investors looking to buy the stock should consider doing so on weakness to $33.40 and $32.71, which are key levels on technical charts until the end of July and the end of 2016, respectively.
Investors looking to reduce holdings should consider selling strength to $36.57, which is a key level on technical charts until the end of this week. The $33.40 level should be a magnet in July.
Here's the daily chart for M&T Bank Corp.
Courtesy of MetaStock Xenith
M&T Bank had a close of $112.87 on Tuesday, down 6.9% year to date and in correction territory 15.8% below its multiyear high of $134 set on July 23, 2015. The stock is up 12.8% from its 2016 low of $100.08 set on Feb. 11.
The daily chart shows the Fibonacci retracements from the July 23 high to the Feb.11 low. The stock was near its 61.8% retracement of $121.04 pre-Brexit on June 23. M&T traded as low as $108.04 on June 27 testing its 23.6% retracement of $108.08. The post-Brexit rebound had the stock back above its 50% retracement of $117.04 trading as high as $118.24. The stock closed Tuesday below its 38.2% retracement of $113.04 and remains well below its price gap to its Dec. 31 low of $121.18.
Investors looking to buy the stock on weakness to $111.89, which is a key level on technical charts until the end of 2016 could have done so on June 27 and had the option to book gains on the rebound. The $112.27 level should be a magnet in July.
Investors looking to reduce holdings should consider selling strength to $118.49, which is a key level on technical charts until the end of September.
Here's the daily chart for PNC Financial.
Courtesy of MetaStock Xenith
PNC Financial had a close of $78.83 on Tuesday, down 17.3% year to date and in bear market territory 21.6% below its multiyear high of $100.52 set on July 23, 2015. The stock is up only 1.5% from its 2016 low of $77.87 set on Feb. 11. In fact, a slightly lower low of $77.40 on June 27.
The daily chart shows the Fibonacci retracements from the July 23 high to the Feb.11 low. The stock was above its 38.2% retracement of $86.40 pre-Brexit on June 23. PNC traded as low as $77.40 on June 27 well below its 23.6% retracement of $83.06. The post-Brexit rebound was only to $81.65 well below its 23.6% retracement. The stock closed Tuesday below its 23.6% retracement and well below its price gap to its Dec. 31 low of $95.20.
Investors looking to buy the stock should consider doing so on weakness to $76.11, which is a key level on technical charts until the end of 2016.
Investors looking to reduce holdings should consider selling strength to $83.88, which is a key level on technical charts until the end of July.
Here's the daily chart for SunTrust.
Courtesy of MetaStock Xenith
SunTrust had a close of $39.50 on Tuesday, down 7.8% year to date and in correction territory 13.8% below its multiyear high of $45.84 set on July 17, 2015. The stock is up 27.2% from its 2016 low of $31.07 set on Feb. 11.
The daily chart shows the Fibonacci retracements from the July 17, 2015 high to the Feb.11 low. The stock was well above 61.8% retracement of $40.20 at $43.21 pre-Brexit on June 23. SunTrust plunged to as low as $37.71 on June 27 below its 50.5% retracement of $38.46. The post-Brexit rebound had the stock back above its 61.8% retracement, then closed Tuesday below this key level, holding up better than the other four super regional banks.
Investors looking to buy the stock should consider doing so on weakness to $38.44, which is a key level on technical charts until the end of July.
Investors looking to reduce holdings should consider selling strength to $40.69, which is a key level on technical charts until the end of September.
Here's the daily chart for U.S. Bancorp.
Courtesy of MetaStock Xenith
U.S. Bancorp had a close of $39.06 on Tuesday, down 8.5% year to date and in correction territory 15.6% below its multiyear high of $46.26 set on July 16, 2015. The stock is up just 5.4% from its 2016 low of $37.07 set on Feb. 11.
The daily chart shows the Fibonacci retracements from the July 16, 2015 high to the Feb.11 low. The stock was above its 50% retracement of $41.67 pre-Brexit on June 23 with a close that day of $42.23. U.S. Bancorp traded as low as $38.47 on June 28 well below its 23.6% retracement of $39.24. The post-Brexit rebound was to $40.34 below its 38.2% retracement of $40.58. The stock closed Tuesday below its 23.6% retracement.
Investors looking to buy the stock should consider doing so on weakness to $35.85, which is a key level on technical charts until the end of 2016.
The $40.46 and $40.85 should be magnets until the end of July and September, respectively.
Investors looking to reduce holdings should consider selling strength to $48.62, which is a key levels on technical charts until the end of 2016.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.