Closely watched bank ETF 'hanging by a thread', threatening broader pullback: analyst

“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.

“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.”

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The small-cap Russell 2000 RUT, -0.99%, 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, -1.01% 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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