Karpel’s Corner: Regional Banks Pressured, Watch Small Caps

Welcome to Karpel’s Corner. This is where I throw out my thoughts on the markets and share some of my favorite strategies. I’ll stay market-focused and  won’t miss any opportunity to teach trading strategies and commentate on the latest trends affecting the financial markets. Hope you enjoy today’s post!

Regional Banks Pressured, Watch Small Caps

Divergence is in play. The Small Caps ($IWM) haven’t been trading with the same upside momentum that the broad-base market indices ($SPY and $DJX) have of late.  This gives me pause for hopes of continuation to the upside with much velocity in the Large Cap indices or S&P 500.

One thing that most traders don’t seem to understand is that the Small Caps are domestic companies, and provide an excellent pulse on the U.S. economy. If the economy is strong, that is a good indicator that small business is doing well and, thus, the consumer is doing well. This can really fuel a bull.

What we are seeing is that the Regional Banks ($KRE), Retail Sector ($XRT), and Home Construction ($ITB) are all lagging and under-preforming. This is is not a positive for the broad market, and explains the nonperformance of the Small Caps ($IWM). I want to see if the $SPY and $DJX stall spooks some traders, and whether we will see some potential volatility in the market. If there is a breakout on the retailers, banks, and builders, then the catalyst would be the outside.  I’m also keeping an eye on volumes.  There have been little if any new money sellers coming into the market, so the bulls continue to have control.

See you next time at Karpel’s Corner!