Traders jumped right in to buy the regional banks late in the trading week, as they sensed a short-term bottom may be in place.

I’ll put it to you that we’re just seeing a new “Standing Eight Count” on this sector, as the long-term risks are still not priced into the market. 

From the bulls’ perspective, heavy selling volume on the SPDR S&P Regional Banking ETF (KRE) started to look a little like it could be approaching capitulation, but we’ve still got a lot of work to do to get to the real bottom in the banks. 

Let’s take a look at the Regionals and a few stocks I’m watching this Monday… 

We’ve got another Standing Eight Count on our hands (KRE) 

There was one mention of the possibility that the SEC could consider a short-term ban on shorting bank stocks – just like they did in September 2008 – as investors continue to get spooked by headlines and analyst comments. 

“The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets,” then-SEC chairman Christopher Cox asserted before making that choice.

As it turns out, the move did not build faith in the market or return equilibrium, as we saw a short-term top within days of the announcement. After some short-term buying, investors flocked from the KRE and SPDR S&P Bank ETF (KBE), as they sniffed desperation in the markets.

Of course, we know how this played out – the broader markets fell another 49% into the March 2009 bottom.

Here’s the press release in case you’re interested…  

I’m watching the regional banks closely over the next few days, as the short-term “buy-the-dip” buyers should run out of intestinal fortitude, and Pepto Bismol, relatively soon.  

At that point, a drift below $38.25 will signal another short-term selling situation on the KRE. 

Southwest Airlines Co (LUV) 

I’m sorry for the pun this early in the morning, but the analysts at JP Morgan aren’t in LUV with Southwest this morning, as the firm downgraded shares of the discount air carrier. 

I took a short position in the airline stocks last week and doubled down on the group with a put on LUV. The reasons? 

  1. The stock’s bearish-trending 20- and 50-day moving averages are just above current levels, which indicates potential for overhead resistance to pressure shares lower. 
  2. There has been a considerable build of put open interest at $30, telling me that there are good odds the stock will see some bearish hedging on a move away from that price.
  3. A break below $29 will add to the downside volatility, as the stock would be posting new lows that date back to 2020. That’s right, LUV shares are approaching their pandemic lows. 

This morning’s downgrade of the shares should add a little more pressure to push LUV toward my target of $26. 

Allstate Corp (ALL) 

Investors have been laser-focused on the regional banks’ performance of late, with good reason. But last week, one of the larger insurance companies out there gave you some dour news. 

ALL dropped its earnings on the Street’s doorstep last Wednesday, and the results weren’t what the market was expecting. The company missed on the bottom line after matching revenue estimates.  

The market responded with buying in the late week, as traders rushed into any stock tied to the financials, but that buying surge is likely to end as we move further from the earnings date. 

My Bollinger Band Squeeze tool is identifying ALL as a shorting candidate with a target of $105, and you only need to watch one price for the trigger. 

A break below $114 will take ALL shares below its 50-, 20-, and 10-day moving averages, which would trigger a short-term bearish trade to the aforementioned $105 mark. 

I’ll be trading that with a July at-the-money put on that cross below $114. 


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