Nobody wants to own Regional Banks. We can see it in the data.
Short interest in the Regional Banks ETF (KRE) is at its highest level ever.
And you’re not going to believe this… but I think everybody’s wrong.
Every single sector in the S&P 500 is above its 200-day moving average – except Consumer Staples.
That’s exactly the kind of sector rotation you see in healthy bull markets.
If you’re above the 200-day, you’re probably not in a downtrend.
All the large-cap sectors that should be rising in a bull market are rising.
And now the small-cap sectors are joining them. The Russell 2000 just closed at a new all-time high for the third straight month.
Go through them one by one. They look fantastic.
Banks in Bull Markets
I’m old school. I’ve been doing this for more than two decades, and one thing hasn’t changed: You don’t get real bull markets without Financials.
So when I see JPMorgan (JPM), Goldman Sachs (GS), Travelers (TRAV), and American Express (AXP) all hitting new all-time highs – at the same time – I have to ask: How bad could things really be?
Investors are buying the banks. Financials aren’t just participating; they’re leading.
Now take a look at the chart below:
Large-cap Financials (XLF) are pressing up against new all-time highs again. Underneath, you can see Small-cap Financials (PSCF), which haven’t broken out… yet.
The S&P 600 Small-cap Financials Index is basically a basket of Regional Banks.
So if large-cap banks are ripping…
If European banks are ripping…
If Latin American banks are screaming higher…
Then Regional Banks aren’t likely far behind.
The market is giving us a pretty clear message. Now we just have to listen.
Bull Market Implications
When you dig into the Russell 2000 – the same small-cap index that’s closed at new all-time highs for three straight months – you’ll notice something important: Financials carry the largest weighting in the entire index.
Now think about this…
Small-caps have already been ripping higher without meaningful participation from its Financials.
Thus far, it’s been Tech, Industrials, and more recently Healthcare – especially Biotech – doing most of the heavy lifting.
So imagine what this bull market looks like if Regional Banks finally join the party.
We’re already in a historic bull run without them.
And yet Regional Banks are sitting near some of their highest short interest levels ever.
I think everybody’s got this one wrong.
Look out. This is where it gets fun.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs