Regional Banks Are Especially Primed for Liftoff Even as the Entire Sector Will Benefit

NEW YORK (Real Money Pro) -- Financial stocks are on the move, as investors assess the impact of higher U.S. Treasury yields.

While the entire banking sector stands to benefit from higher yields, one particular subsector appears to be in the sweet spot. According to the charts, the best is yet to come for small regional banks.

On Tuesday, the SPDR S&P Regional Banking ETF (KRE) broke out of an ascending triangle (see the black lines) to close at a one-year high.

That achievement marked the end of a four-month-long consolidation process. Notice how the ETF is riding up its 50-day moving average (marked in blue), which is providing additional support along the bullish trend line. KRE's moving average convergence-divergence indicator flashed a buy signal on Monday (note the arrow).

Source: All Charts by TradeStation

KRE shares have risen about 10% since early February when the stock was also recommended. The ETF just needs to close above $42.80 to reach an all-time high. The measured move technique, when applied to the ascending triangle, results in a target price of about $44.

How does KRE stack up against larger banks, represented in the following comparison chart by the S&P Select Financial SPDR Fund (XLF)? When compared head to head, it's pretty clear that over the past three months, KRE (marked in blue) has outperformed XLF (indicated in green). Of even greater interest is the way the fortunes of these two ETFs have sharply diverged over the past week (shaded in yellow).


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