Three Trend-Bucking Picks

by Tom Aspray

The stock market rebound Tuesday helped calm the very nervous bulls, and the futures are higher again in early Wednesday trading. This rebound can clearly go further but the daily technical studies still suggest that this rebound is likely to be followed by another round of selling.

The good news is that the seasonal pattern does favor a higher market in early July, and secondly, not all stocks or industry groups bottom at the same time. Though one does not want to be an aggressive buyer when the market is still correcting, one should not miss an opportunity to put their high cash levels to work.

In this type of environment, I look for stocks or ETFs where the weekly OBV confirmed the most recent highs and those that are outperforming the overall market. This ETF and both of these stocks meet this criteria and should be bought at the right price but not chased.

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Chart Analysis: The SPDR Regional Banking ETF (KRE) has assets of $1.49 billion and currently yields 1.78% with an expense ratio of 0.35%. Its is quite diversified with over 70 regional banks and the top ten holdings make up less than 20% of the fund.

• The daily chart shows that it completed its flag formation (lines a and c) with Tuesday’s close.
• The formation has initial upside targets in the $35 area.
• The breakout has been confirmed by the technical studies as the relative performance broke through resistance, line d, last Thursday.
• The RS line is rising very sharply and the weekly (not shown) is also positive.
• The volume was heavy Tuesday as the OBV has slightly overcome the resistance at line f.
• The weekly OBV is also holding well above its rising WMA so the OBV multiple-time-frame analysis points higher.
• There is initial support at $32.40 to $33 with stronger at $31.40-$31.80.

MB Financial Inc. (MBFI) is a $1.41 billion regional bank headquartered in Chicago that currently yields 1.6%.

• The daily chart shows a trading range, lines h and I, since early May.
• This is likely a continuation pattern that will be resolved to the upside.
• The initial upside targets are in the $28-28.50 area, which corresponds to the 201 highs.
• In 2008, MBFI traded as high as $44.41.
• The daily relative performance has already broken through its resistance at line j, indicating it is a market leader.
• Last week there was a big-volume day, and the OBV has just moved above the resistance at line k.
• Both the week RS and OBV analysis (not shown) are also positive.
• Initial support at $25.40-$25.80 and then in the $24 area.

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M&T Bank MTB +1.65% Corp. (MTB) is a $13.83 billion northeast regional bank holding company that currently yields 2.60%. It closed strong Tuesday as the May 22 high was overcome.

• MTB has been in a trading range, lines a and b, for the past eight months.
• A close above $108 would be an upside breakout with upside target from the formation in the $119-$120 area.
• In early 2007, MTB made a high of $125.13.
• The relative performance has broken its long-term downtrend, line c.
• The RS line is well above its rising WMA and the weekly (not shown) is also positive.
• The daily OBV is now testing its resistance, line d, and shows a positive uptrend (line e).
• The weekly OBV (not shown) closed above its WMA last week.
• There is initial support at $106-$106.50 with monthly support for July at $102.76.

What it Means. The weekly and daily analysis of this ETF, as well as these two banks, does indicate they are likely to be the market leaders in the coming months. If our buy levels are not hit today, then they may be on the next pullback in the overall market.

The SPDR Regional Banking ETF (KRE) looks the most attractive because of its diversification. MB Financial Inc. (MBFI) has some good upside potential if you can get long before it breaks out to the upside, but I would only buy M&T Bank Corp. (MTB) on a decent pullback.

How to Profit: For SPDR Regional Banking ETF (KRE), go 50% long at $33.11 and 50% at $32.46, with a stop at $31.63 (risk of 3.5%).

For MB Financial Inc. (MBFI), go 50% long at $25.86 and 50% at $25.48, with a stop at $24.28 (risk of 3.5%).

For M&T Bank Corp. (MTB), go 50% long at $105.62 and 50% at $104.57, with a stop at $99.33 (risk of 5.5%).

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