A trio of bank collapses last month turned a regional-bank tracking exchange-traded fund into something of a market bellwether. And after a short stretch of price stability it’s “hanging by a thread,” a Wall Street technician warned on Wednesday.
The SPDR S&P Regional Banking ETF
KRE,
fell 1% to close at $42.01, its lowest close since Nov. 6, 2020, according to Dow Jones Market Data, ending below its March 23 close at $42.24 while holding above its March 24 intraday low at $41.28. KRE fell sharply on Tuesday as the S&P 500 index
SPX,
and Dow Jones Industrial Average
DJIA,
saw modest declines, snapping four-day winning streaks.
“Yesterday was a poorer session than the large cap indices implied, with the regional banks once again leading the market lower. KRE, the regional banking ETF, looks to me like it’s hanging on by a thread as it attempts to make a ‘triple bottom’ and hold above its recent lows,” wrote technical analyst Andrew Adams in a Wednesday note for Saut Strategy.
KRE attempting to put in a triple-bottom around $41.
FactSet
“I do not trust triple bottoms, as more often than not that third attempt lower ends up breaking down to new lows and ruining the potential pattern,” he said. “It looks like we’re likely to get a lower low in KRE and that has dragged the small-caps down with it.”
Read: Bank stocks end tough quarter with gains as sector stabilizes despite outflows from savings accounts
The small-cap Russell 2000
RUT,
which has been weighed down by worries over regional banks, declined 1% on Wednesday. The S&P 500 ended 0.2% lower, while the Dow rose around 80 points, or 0.2%.
Adams said that the price action around KRE coming at a time when short-term breadth, a measure of stocks gaining ground versus those that are falling, was already near an extreme and the Nasdaq-100
NDX,
was trading more than two standard deviations above its 50-day moving average seemed to warn that a pullback “could be coming.”
The Nasdaq-100 has led stock market gains in 2023, and remains up more than 18% year to date.
“The characteristics and severity of that pullback should then clarify whether we’re likely to then push higher once again or continue to drop in the near term,” he wrote.
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