Here’s a quick Chart Study of the Regional Bank ETF $KRE – April 25, 2023
This is Scott with your Chart of the Day. I want to take a look at the KRE Regional Banking ETF ( NYSEARCA: KRE ) for a little chart study. Yesterday, I and Dan Fitzpatrick from StockMarketMentor.com, were in a live Webinar mentoring members of our premium website.
Someone asked about KRE ( NYSEARCA: KRE ) and asked if this was the time to buy. This was yesterday and someone said, Hey, what do you think, does this look like it’s time to buy? My initial reaction was, no. The reason is that I see this pattern here as a bearish continuation pattern.
I have seen this play out many, many times in the stock market. You can see how it has progressively lower highs, though, there are some higher lows. You can see it’s kind of pinching a bit here. And so what I said to the member in the webinar was, just zoom out.
This pattern here Dan, looks like a wedge in a downtrend. And typically, those can break lower, those are continuation patterns. And so unless you see a break higher here, I think it’s status quo. No, this is dead money right now, you don’t want to try to trade this bottom.
This is a chart that I would look at and say, Okay, the Regional Banking issue is not over. Let’s zoom out to the last year. What is the overall trend of this stock, objectively? You can say. Oh well, you had an opportunity here, you had an opportunity there. That’s fine, but just generally, what’s the overall trend?
The overall trend is down, and we can tell that because, since January 2022, this chart has been printing progressively lower highs. So this is our high, a lower high, lower high, lower high, and eventually we get a breakdown, and then, some consolidation.
Now, this consolidation, after a big breakdown, is actually not a bullish pattern, unless, it can make a higher high out of this consolidation. And so buying right here, within a consolidation, in my opinion, is a bit risky. You are front running the move, you are guessing.
The market isn’t telling you that it is ready to go higher, you just think it’s ready to go higher. And sometimes, you can totally be right and make money. But the way I trade is just to really put the probabilities in my favor, and so I like to wait for confirmation of a move higher. So I said, “Now, this looks like a bearish continuation pattern.” We actually ended up getting that confirmed today with this move lower.
And so this, again, is just the trend continuing its current trend. It is in motion and it’s following through to the downside. Now of course, I don’t know what is going to happen with the banking sector, I don’t know if anyone does. This could easily reverse and go to the moon, and that’s fine.
But if you see this pattern again, in any stock, just remember it. Because, again, this tightening pattern is a bearish confirmation pattern, if it confirms to the downside. Now, if it confirms to the upside, then that is, in my opinion, totally tradeable. We saw that here on BITO ( NYSEARCA: BITO ), which is the ProShares Bitcoin Strategy ETF ( NYSEARCA: BITO ). We saw that over here in June and July, it was very similar.
And here is what I like about charts, the fact that these patterns play out over and over, and it is just up to you to recognize them. So again, here is a very similar pattern in a clear downtrend. This has been going down all year, lower high, lower high, and lower high. Yes, there are short-term bounce opportunities but the overall trend is down.
And then over here, in this consolidation, we have another little triangle pattern, where we have some more highs, and yes, a slightly higher low. So you can see how, again, it is kind of pinching, it is consolidating a little bit. But what happens out of this pattern is it breaks higher. It makes a higher high. And then you get a little follow-through to the upside.
Now ultimately, this does break down, and that’s fine. But at least it gave you some confirmation of higher prices before front-running the move. Now, of course, you are not going to make all of the money because you are not buying down here. You are not buying the bottom, you are buying the confirmation, so you are not going to make as much money.
But, in my opinion, what you are paying for is a little more sleep at night. Because you don’t know, in a choppy uncertain market like Bitcoin was around July and August, you don’t know where this is going to go. And even if this does break down, as it did here, and you hold through, at least you are getting out with just a tiny loss and not a major loss like you would if you held something like KRE ( NYSEARCA: KRE ) and woke up to a gap down and a flush.
So again, I just want to bring your attention to this pattern here. It is very subtle, but you are going to see this play out over and over on trends that are already down. And you are going to think, Oh here we go, it’s the bottom. But wait, what if it isn’t?
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