(Free) Regional Banks Steal the Show From the Fed

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Our View

Another day, another bank on the brink.

There’s always more than just one thing going on in the stock market. Yesterday’s focus was the Fed's rate hike, but while that was going on, another bank was failing. Regional banks remain a major issue. Not just because of the rate hikes, but due to the failures. PacWest (PACW) fell 50% in after-hours trading while the KRE continues to melt lower.

PacWest is teetering on the brink after the collapse of several rival lenders and PACW has been weighing a range of options — including a sale — according to sources. It has also been considering a breakup or a capital raise.

US regional banks have been in turmoil after a run on deposits struck several lenders, ultimately leading to the collapse of three California-based banks and one in New York.

This is an ongoing risk we must be cognizant of as we move forward. Jeffrey Gundlach said last night, “It just seems to me that deposits are going to keep drifting out…I don’t think this is the last chapter in this regional banking problem.”

Our Lean

MiM and Daily Recap

The ES traded up to 4149.50 on Globex and opened Wednesday's regular session at 4141.25. After the open, the ES down-ticked to 4140 and slowly rallied up to 4154.50 at 9:53 and then sold off down to 4030.75 at 11:13. After the low, the ES rallied up to 4153.75 at 1:42 then pulled back to the 4147 level at 1:57. At 2:00 the Fed raised interest rates by 25 bps as expected and the ES shot up to 4164.25, then dropped down to 4141.25 at 2:03 and then sold off down to 4139.25 at 2:05.

The ES rallied back up to the 4153 area, then broke back down to 4139 and rallied up to 4161.75 at 2:27, then fell back down to 4131 at 2:37 before rallying up to 4167 at 2:41 after a barrage of Fed Chair Powell's headlines hit the tapes. The ES then sold off back down to 4143 at 2:44, rallied up to 4156.25, dropped to a new low at 4132 at 2:52, rallied back up to 4157.50 at 2:56, dropped down to 4139.25 at 3:03, shot back up to 4159 at 3:06 and then sold off down to 4120.75 at 3:16.

Phew!

The ES rallied back up to 4134.25 at 3:26 and then pulled back down to a new low at 4108.25 at 3:34, then made a new low again at 4106.75 at 3:47 after a slight bounce. The ES traded 4108.50 as the 3:50 cash imbalance showed $675 million to sell and traded 4107.25 on the 4:00 cash close. After 4:00, the ES rallied up to 4117, sold off down to 4095 and settled at 4096.25 on the 5:00 futures close, down 37 points or 0.90% on the day.

The Nasdaq (NQ) settled at 13,089.00, down 0.64% or 84.25 points. Crude (CL) fell over 5% on Tuesday and dropped another 4.3% yesterday. CBOT wheat futures, which had the highest level of short open interest, rallied 5% on the day after making new 52-week lows.

In the end, it's not about what goes on before the Fed, it's what happens after and today proved that point. In terms of the ES's overall tone, I have not seen more buy and sell programs in 2 hours in a very long time. In terms of the ES's overall trade, volume was 1.61 million contracts traded and I would have thought it would have been higher given the news flow and price action.

Note: I want to explain something. I know I am supposed to cut backs on the recap and as much of a pain in the ass as it is, it helps me build my opinion.

Technical Edge —

• NYSE Breadth: 35% Upside Volume

• Advance/Decline: 41% Advance

• VIX: ~$19.50

KRE

Daily on the left, weekly on the right. Notice three straight down days as $42 failed as support. Now trading the 78.6% retracement, let’s see if buyers step in.

If yes, $40, then $42 are key on the upside. If not, $34 could be on the table.

This is not a trade setup, just a look at the KRE as it pertains to the S&P.

S&P 500 — ES…

Open Positions

• Bold are the trades with recent updates.

• Italics show means the trade is closed.

• Any positions that get down to ¼ or less (AKA runners) are removed from the list below and left up to you to manage. My only suggestion would be B/E or better stops.)

• ** = previous trade setup we are stalking.

Down to Runners in GE, CAH, LLY, ABBV, AAPL, MCD & BRK.B

Keep calm; exercise patience. Remember, we can afford to wait for the prime setups now.

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Go-To Watchlist

Feel free to build your own trades off these relative strength leaders

Relative strength leaders →

1. MCD, PEP & KO, WMT, PG — XLP

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Economic Calendar

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!

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