KBW, KRE ETFs analysis ahead of US bank earnings
The situation in the banking sector has cooled down recently as the situation improves and collateralized debt obligations (CDOs) have normalized. Bank stocks, however, remain under pressure in the past few weeks. The closely-watched KBW ETF was trading at $41.26, the lowest level since November 2 while the KRE ETF was $42.31.
Bank earnings aheadCopy link to section
The SPDR S&P Regional ETF is the most popular exchange-traded fund for regional banks. Some of the biggest companies in the fund are New York Community Bancorp, Regions Financial, M&T Bank, and First Horizon among others.
On the other hand, the Invesco KBW Bank ETF, is one of the biggest banking ETFs, with the biggest companies being Citigroup, JP Morgan (NYSE: JPM), Bank of America, Northern Trust, and Wells Fargo among others.
These ETFs had a major dive in March after key companies like Silicon Valley Bank (SVB), Signature Bank, and Credit Suisse collapsed. They also plunged as CDOs of most banks like Deutsche Bank and First Republic jumped.
The situation in the banking industry has cooled a bit in the past few weeks as some investors bet that the situation has normalized. That happened after the US decided to backstop all bank deposits. Also, the reality is that the banks that collapsed had their specific challenges. Credit Suisse was a scandalous bank while the two American banks were exposed to single sectors.
The next key catalyst for the KRE and KBW ETFs is the upcoming bank earnings season which will start on Friday. Wells Fargo, JP Morgan, and Citigroup will publish their results on Friday while Schwab, State Street, M&T, and Guaranty Bancshares will publish next Monday. Schwab will be watched closely because of the ongoing capital flight from the company.
Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.
Bank of America, Goldman Sachs, Bank of New York Mellon, and First Horizon will publish their results on Tuesday next week. In all, all national and regional banks will deliver their results in the coming weeks.
KBW ETF outlookCopy link to section
The daily chart shows that the KBW ETF has been in a strong bearish trend in the past few months. Most recently, the fund has formed a bearish pennant pattern, which is usually a bearish sign. The pennant’s triangle pattern is nearing its confluence level.
Further, the stock remains below all moving averages. Therefore, the banking ETF will likely have a bearish breakout as sellers target the next key level at $35.
KRE ETF outlookCopy link to section
The KRE stock has also been in a strong bearish trend in the past few days. A closer look shows that the ETF has formed a falling wedge pattern that is shown in red. In price action analysis, this is one of the most bullish signals. Therefore, the ETF will likely have a bullish breakout during and after the earnings season. This recovery could see it rise to the key resistance at $45.