A big July bounce for previously pummeled regional bank stocks has caught the attention of a closely followed technical analyst. Jeff deGraaf, founder of Renaissance Macro Research, cautioned that this surge may have gone too far, too fast.
According to deGraaf, “Banks are in the danger zone.” He pointed out that their relative trends turned negative towards the end of 2022. However, their oversold condition this spring made them susceptible to a bounce. The collapse of Silicon Valley Bank and other regional lenders in March sent bank stocks plummeting, raising concerns about a broader banking crisis.
One example is the SPDR S&P Regional Banking ETF (KRE), which reached levels last seen in September 2020 during the March sell-off. However, it has since rallied more than 8% this week and over 14% in July. Despite this recovery, it is still down more than 20% year-to-date. Other banks have also experienced strong rebounds in July.
DeGraaf noted, “That bounce has now created an overbought condition, though many remain 10-15% away from natural resistance levels.” He believes that this move is nearing exhaustion, although he admits that the timing may not be precise.
- Regional bank stocks have experienced a significant rebound in July.
- Jeff deGraaf warns that this surge may have happened too quickly.
- Banks faced negative relative trends in late 2022 but were vulnerable to a bounce due to oversold conditions.
- The collapse of Silicon Valley Bank and other regional lenders in March caused bank stocks to plummet.
- The SPDR S&P Regional Banking ETF (KRE) has rallied, but it remains down more than 20% for the year.
- DeGraaf states that the recent bounce has created an overbought condition and may exhaust itself soon.
Stock Market Today: Dow heads for 8th daily gain as Wall St. extends rally
According to a recent report, financials in the capital market are currently in an extreme state, exhibiting excessive returns over the course of three years. However, experts warn that this upward trend may not be sustainable in the long run. It is important to remember that “trees don’t grow to the sky,” and therefore caution is advised when it comes to investing in this group.
On Wednesday, midday data showed that KRE was up 1.5%, while the equalweight measure of the S&P 500 financials sector saw a 1.6% rise.
The overall U.S. stock market experienced gains on Wednesday, with the S&P 500 up by 0.3% following its highest close since April 4, 2022. The index is now just 5% away from its record close on Jan. 3, 2021. Meanwhile, the Dow Jones Industrial Average rose around 140 points, or 0.4%, putting it on track for an eighth consecutive gain.
In other news, shares of Goldman Sachs Group Inc., a Dow component, initially experienced losses but eventually rebounded, trading up by more than 1%. However, the bank did report a profit-target miss, which sets it apart from the other top six banks in the U.S.
