Regional Banks thwarted, could be right shoulder forming

Welcome to Karpel’s Corner. This is where I throw out my thoughts on the markets and share some of my favorite strategies. I keep it market-focused, and never miss an opportunity to teach trading strategies and commentate on the latest trends affecting the financial markets. Hope you enjoy today’s post!

A headline crossed the wires last week that caught my eye: A few former execs from Regions Financial ($RF) were involved with overstatement on some loans.

While that news in itself is not enough to make a trade, I did what I always do when I see a potential idea: I take a look at what the benchmark is doing. In this case, the Regional Banking Index ($KRE). What caught my eye as I looked at the chart was the potential for a right shoulder forming in a Head and Shoulders pattern.

A break in this ETF would signal potential trouble for the sector, specifically a break of $37 in the $KRE. Now that is $3 bucks away but a break at that level could shake the confidence of the bulls in Regional Banks. Also, short term, two-year Treasuries and mid-term, 10-year Treasury yields have not been too supportive. Basically, half of what we saw almost two years ago when the great bull market for Regional Banks started. With all the data out this week, this sector could be in play.

Keep an eye on the Tradespoon Bear Picks page as well as the Daily Picks for any specific ideas that may come up. Still keeping risk capital tight this week with so much data and a shortened holiday week.

See you next time at the Corner!