Regional Bank Corrections Remain After Earnings

The Federal Reserve is raising the federal funds rate, which is supposed to benefit regional banks, but that has not been the case. Conventional wisdom does not work when the banking system has experienced a credit crunch, a zero percent funds rate, three waves of quantitative easing, and now a long and tedious so-called normalization of monetary policy by the Federal Reserve.

When the Federal Reserve cut the federal funds rate to 0.00% to 0.25% back in December 2008, banks had a difficult time managing net interest income. The first hike in the funds rate to 0.25% to 0.50% occurred in December 2015, and many banks already had a mismatch between short-term funds and longer-term interest-bearing assets. This policy kept going as the Fed was slow to raise rates.

The second rate hike to 0.50% to 0.75% occurred in December 2016, and then the pace picked up with three hikes in 2017, bringing the rate to 1.25% to 1.50% in December 2017. So far in 2018, there have been three hikes taking the funds rate to 2.00% to 2.25% on Sept. 26.

One of the key data releases I have tracked since 2006 is the Federal Deposit Insurance Corporation (FDIC) Quarterly Banking Profiles (QBP), and the more recent releases continue to show concerns on net interest income. In the QBP for the second quarter of 2018, the FDIC warned that the current interest-rate environment showed heightened exposure to interest rate, liquidity and credit risks when managing net interest income. This is one reason for weakness in regional banks.

Here's the scorecard for the five super regional banks I have been covering:

Here are the weekly charts and the key trading levels:

BB&T Corporation (BBT)

The weekly chart for BB&T is neutral, with the stock below its five-week modified moving average of $49.59 and above its 200-week simple moving average, or "reversion to the mean," at $42.96. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 25.39, up slightly from 25.26 on Oct 12.

Given this chart and analysis, my trading strategy is to buy BB&T shares on weakness to my monthly value level at $47.44 and to the 200-week simple moving average of $42.96. My semiannual and annual pivots are $48.47 and $50.38, respectively. Trader should consider reducing holdings on strength to my quarterly risky level of $58.69.  

M&T Bank Corporation (MTB)

The weekly chart for M&T Bank is negative, with the stock below its five-week modified moving average of $167.80 and well above its 200-week simple moving average, or "reversion to the mean," at $143.48. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 30.52, down from 34.05 on Oct. 12.

Given this chart and analysis, my trading strategy is to buy M&T Bank shares on weakness to my monthly value level of $159.95 and the 200-week simple moving average at $143.48. My semiannual pivot is $169.20. Traders should reduce holdings on strength to my annual and quarterly risky levels of $182.77 and $214.73, respectively.

The PNC Financial Financial Service Group, Inc. (PNC)

The weekly chart for PNC is negative, with the stock below its five-week modified moving average of $135.12 and well above its 200-week simple moving average, or "reversion to the mean," at $112.49. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 31.12, down from 38.16 on Oct. 12.

Given this chart and analysis, my trading strategy is to buy PNC shares on weakness to the 200-week simple moving average of $112.49. My monthly pivot is $129.48. Traders should consider reducing holdings on strength to my annual and semiannual pivots at $135.29 and $137.59, respectively.

SunTrust Banks, Inc. (STI)

The weekly chart for SunTrust is negative, with the stock below its five-week modified moving average of $67.18 and well above its 200-week simple moving average, or "reversion to the mean," at $51.84. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 26.38, down from 33.84 on Oct. 12.

Given this chart and analysis, traders should consider buying SunTrust shares on weakness to the 200-week simple moving average at $51.84. My annual pivot is $64.41. My trading strategy is to reduce holdings on strength to my semiannual and monthly pivots of $65.95 and $66.50, respectively.

U.S. Bancorp (USB)

The weekly chart for U.S. Bancorp is negative, with the stock below its five-week modified moving average of $52.87 and well above its 200-week simple moving average, or "reversion to the mean," at $47.69. The 12 x 3 x 3 weekly slow stochastic reading ended last week at 57.11, down from 65.97 on Oct. 12.   

Given this chart and analysis, my trading strategy is to buy U.S. Bancorp shares on weakness to my monthly value level of $46.87 and to reduce holdings on strength to my annual and quarterly risky levels of $60.27 and $61.13, respectively. My semiannual pivot is $51.85.