KRE ETF forms a bearish pattern head of regional banks earnings

The SPDR Regional Banking ETF (KRE) ETF will face its toughest test this week as more components publish their financial results. The stock is hovering near its lowest level since November 2020 as concerns about the regional banks industry remain.

Regional banks earnings

There have been a lot of concerns about the regional banking sector following the collapse of Silicon Valley Bank and Signature Banks. First Republic Bank, a company that caters for the wealthy, is also on life support as I wrote here.

Regional banks are also facing another challenge as the commercial real estate sector implode. Many companies in the sector like Vornado Realty and SL Green are facing billions of dollars in maturities in the next few years. Regional banks have a lot of exposure to this industry.

Further, analysts now believe that these companies will slow their lending as they are expected to see more regulatory scrutiny. And last week’s strong results by big banks like Citi, JP Morgan, and Wells Fargo mean that some of these companies saw outflows in Q1.

Therefore, the KRE ETF will be in the spotlight this week as most companies in the ETF are expected to publish their results. M&T Bank, the fourth-biggest bank in the ETF will publish its results on Monday while Citizens Financial will release on Tuesday.

Other top banks in the KRE ETF that will release their results this week are New York Community Bancorp, First Horizon, and Truist Bancshares. 

On Friday, PNC Financial, a leading regional bank had strong results, helped by high-interest rates. But it published a weaker guidance as it expects its revenue to jump by between 4% and 5% this year. These regional banks are also expected to lower their estimates and then reiterate that their books are solid.

KRE ETF stock forecast

KRE chart by TradingView

The daily chart shows that the KRE stock has been in a strong bearish trend in the past few months. Most recently, the shares have formed what looks like a bearish pennant pattern that is shown in orange. In most periods, this pattern is usually a sign of a bearish continuation. It has moved below all moving averages. 

Therefore, there is a likelihood that the fund will have a bearish breakout as seller’s target moves below the support at $40. A move above the resistance point at $45 will invalidate the bearish view.