Editors' pick: Originally published July 1.
Investing in smaller banks in the wake of the Brexit vote sounds like a fine idea. "While most small and mid-sized banks based in the U.S. were not directly affected by Britain's decision to leave the European Union, their share prices have taken a hit along with larger competitors," Alicia McElhaney wrote -- which could indicate buying opportunities in the stocks.
That said, I want to see the positive footprints of buyers before committing.
Here's a closer technical look at how to trade five smaller bank stocks.
Pinnacle Financial Partners
In this daily chart of Pinnacle Financial Partners (PNFP) - Get Report , above, we can see a stock largely stuck between $44 and $52. Right now PNFP is below its 50-day and 200-day moving averages. The real issue with this chart is the chronic decline of the on-balance-volume, or OBV, on this chart from as early as November. A declining OBV line tells us that the volume of shares traded has been heavier on days when PNFP has closed lower. This suggests that sellers have been more aggressive and are anxious to get out of long positions.
In this chart of ServisFirst Banshares (SFBS) - Get Report , above, we see an uptrend, but we are cautious for a number of reasons. Prices are above the 200-day moving average but below the 50-day line. The OBV line is positive but the volume in this stock is fairly thin, and therefore it is not a security I am comfortable with owning. Thinly traded stocks often have too much slippage when you want to buy and when you want to sell. In addition, there is a bearish divergence in April and June between the price action and the momentum indicator. I'll take a pass on SFBS.
In this chart of Renasant (RNST) - Get Report , above, we are also put off from going long. Prices of RNST have largely traded sideways the past 12 months. Prices are below the declining 50-day moving average line and the 200-day average. The OBV line peaked in early May and has weakened. With no bullish divergence developing as prices moved lower recently, I find I want to stand aside on RNST.
In this daily chart of Comerica (CMA) - Get Report , we find that prices are below the 50-day average line and testing from the underside the 200-day line. The OBV line has been flat, which suggests a lack of interest from investors. No bullish divergences also suggests the lack of interest to be a scale-down buyer.
Texas Capital Bancshares
Things may be bigger in Texas, but the chart of Texas Capital Bancshares (TCBI) - Get Report , above, doesn't show any big buyers of of TCBI. The OBV line is flat. Prices are testing the 50-day and 200-day moving averages from below. With resistance in the $50-to-$60 area, I don't find a compelling reason to go long TCBI at this time.