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Yesterday we took a look at the regional bank sector by way of analysis of the S&P Regional Banking ETF (KRE).
If you didn't catch my analysis of the situation currently unfolding in this key sector, then take a moment to catch up.
Let's take just a moment for an update because things have changed a bit.
KRE shares were trading higher yesterday as I was writing this...
"This is the last push for the headliners to control the narrative for the next two to three months."
Today, the KRE is trading 1.25% lower as this key ETF is sliding back towards a critical test of the $42.50 level. A break below that "Maginot Line" of technical support is likely to send the KRE tumbling as much as 13% to what I see as the next level of support.
Now, you can prepare for this move like me by holding puts on the KRE.
This is a simple approach to taking advantage of the deteriorating trend in the regionals.
My Alpha Accelerator subscribers are currently holding a put position on the KRE that is up more than 35% as we head into the seasonally weak end of September.
Now, if you want to get a little more tactical, to generate even more profit potential, you look at the components of the regional bank ETF (KRE) to find a few extra opportunities.
The S&P Regional Banking ETF holds 140 different stocks, providing ample opportunity to leverage the sector's weakness.
As is always the case, I filtered the sector to find stocks that are trading below their bearishly trending 50-day moving averages. This resulted in a list of 40 stocks.
As always is the case, my next step is to go through the options activity on this group of stocks and then the fundamental and technical analysis of each prospective trade.
This determines a few things.
First, it tells me if the market's expectations are out of sync with the stock's fundamental and price profile.
Second, if the options market is robust enough for a valuable trade.
Third, target prices for the underlying stock as well as something I refer to as the "tipping point" or "trigger" price for each stock. This is the price that my analysis determines as the point where the market is likely to start increasing their selling, which accelerates the stock's move in our direction.
Two stocks are high on my list to leverage the expected move lower in the regional bank sector.
First Financial Bancorp (FFBC) and Prosperity Bancshares, Inc. (PB).
Let's walk through First Financial Bancorp (FFBC).
First of all, "smile when you say that", FFBC is headquartered here in Cincinnati. As a matter of fact, I can see their headquarters on East Fifth Street from my office window. I know the bank and its roots well.
In a different environment, I would be touting this stock as a buy based on their regional expansio…
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About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.