Are Regional Banks Getting Ready to Breakout?

The Financial Sector has had a rough start to 2015, down 2.39% and is the weakest of the nine S&P sectors. With rates continuing to fall traders have not been showing much love to the banks. With weakness can come interesting chart setups and I think one is developing within a sub-industry of the Financials sector – Regional Banks.

For the bulk of 2014 we saw Regional Banks ($KRE) trade in a range between $41 and $37. However, last week we saw a strong bounce in the banks, climbing 8.5%. This comes as price bounces off the 100-week Moving Average and we see a test of support in momentum.

Currently the Relative Strength Index (RSI) has been making lower highs while also staying above ‘oversold’ territory and in a somewhat of a bullish range. If buyers continue to step in then we could see the RSI indicator break out from its multi-week down trend.

When I look at an industry within a sector I like to track how that industry is performing relative to its sector as well as the sector to its major index. As Financials ($XLF) have been under-performing the S&P 500 ($SPY) for the last year and a half, Regional Banks ($KRE) have been unable to keep up with Financials. Since the start of 2015 Regional Banks have begun to outperform the Financial Sector. Is this an early sign that Financials will also in turn begin to have better performance themselves?

While $KRE has been in trading range for a year, this consolidation is occurring after an up trend, which is a bullish characteristic and could lead to another leg higher for the industry as the up trend does in fact continue.

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