According to two traders, investors should consider buying into regional banks that are being swept off. SPDR S&P Regional Banking ETF (NYSE: KRE) has dropped over 5% this week as it gets caught in the middle of broader market sell-off and dropping bond yields. However, Piper Sandler senior technical analyst Craig Johnson told CNBC’s “Trading Nation” that the trade is off from falling knife.
The pressure of falling 10-year bond yields affecting regional banks
“I’d call it shaken, but not stirred. Right? So from our perspective, as I look at this overall market here, I can see that as we’ve seen this sort of correction happening in 10 year bond yields, we’ve seen pressure happening for all these regional banks. And what we basically have seen is just sort of a bit of a breakdown, but again, I think it’s still the right place to be is to be overweight the financial sector,” said Johnson.
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He explained that the little shake out being experienced is just that a shakeout. Johnson further said that you could find god support at the rising 200-day moving average, and he could buy the financials on the current weakness.
Also, Blue Line Capital President and Founder Bill Baruch shared the same sentiment during the interview, stating that he added to his KRE position during Thursday’s trading. Baruch said:
“You know, what I added to a KRE was named we’ve owned for a while named that. I said I added to today. I raised a little bit of cash in some of these high growth names, the head of the fed minutes yesterday and use that cash here overall.”
The banking sector could recover in 2H 2021 since most people are using credit
Bill added, “I now, speaking of those high growth names, it’s been the yields, the precipitous drop in yields that has powered a lot of those in virtually, it’s hurt the banking sector, but the reality is the banking sector, has there’s a lot of activity. People are using credit and I think the second half is going to be terrific.”
Baruch is optimistic that although KRE broker recently below support at $63.5, he expects it to recover considering its corrected of a vital Fibonacci retracement level on Thursday. If KRE bounces off the 61.8% retracement level, it could head to a new support level.
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