This morning I had everything set to talk about the approach of the Retail earnings reporting season.
Names like Walmart Inc. (WMT), Target Corp. (TGT), Home Depot Inc. (HD), Macy’s Inc. (M), and the rest of the crew start releasing their results today.
HD kicked things off with an earnings beat and I think there’s an opportunity in the stock for you. I sent the details out before earnings hit, but if you missed it – check this video out to get all caught up:
I want to take a few minutes today to renew a call to be on alert with this market.
I closed out last week by explaining a few indicators that I am watching closely as the market sits at a fork in the road.
There’s been a part of me that has thought that the market may defy the odds this year. Maybe a rally through August and into September instead of the normal seasonal weakness.
It would make sense for a couple of reasons.
First, we’re amid one of the largest unwinding of pessimism towards stocks that I’ve seen in more than 30 years of tracking investors’ sentiment.
What that means is that there is an unusually large amount of cash sitting on the sidelines trying to make its way back into stocks.
The problem? Both investors and traders don’t want to buy at the current levels.
At the same time, they also don’t want to watch the market continue to melt higher.
It’s the ultimate in FOMO – if I can be blunt about it damned if you do, damned if you don’t, describes the situation quite well.
But something that happened last week is now playing a heavier hand in market prices. One that may tip the scales in the bears’ favor over the next couple of weeks.
I’m talking about the downgrade to a list of small regional banks.
Let’s set the stage.
Since early 2023 regional banks have been the most hated sector in the market. The failure of multiple banks soured the market’s risk appetite for more than four months. Then something happened, the banks started to see “green shoots” during the most recent earnings season.
In a normal market, the banks would have remained toxic to investors. A seismic hit similar to that delivered to the regional banks in February can take up to a year to heal.
Not this time though, this time investors and traders ran right into the sector as greed has been the most significant driver for 2023.
Read that last sentence again, because it’s the key to why you need to watch the regional banks this week.
Last week, 100% of the stocks that make up the regional bank ETF were trading above their respective 50-day moving averages (MA50). Let that sink in one HUNDRED percent…
To put that into perspective, the S&P 500 only got to a high of 89% for the same reading, and the Nasdaq 100 (QQQ) 84%.
Currently, the percentage of companies in the S&P 500 and the Nasdaq 100 are in the 50% range. The regional banks, still at 94 percent.
What does that mean?
The regional banks have more risk for retracement than the rest of the market.
Sometimes it really is simple, and this appears to be one of those times.
Here’s how things look to potentially play out.
The Russell 2000 Index (IWM) is sitting right on its own MA50. That’s significant because most regional banks are part of the Russell 2000.
A break of the IWM’s MA50 will increase selling pressure on the regional banks, specifically because of their unique risk/reward situation.
Currently, the short-term target for this risk-off based selling targets $180 on the Regional Bank ETF (KRE).
I’m positioning for that move using at-the-money September options on the ETF while targeting a few larger at-risk names in the regional bank universe with October expiration puts.
August 15 2023