Everyday on financial news outlets we hear different market opinions and predictions. These “experts” get in front of the camera and tell us where they think the markets are headed, whether the economy is on solid footing or not, what the fed’s next move might be etc. Most often, these “predictions” are made based on fundamentals which lag the real market action. Remember, if you are going to trade based on the earnings report of a company or other financial reports, this information is almost always baked into the cake before its released to the general public. One thing we know, which has been proven over time, is that the charts tell the story of the future, far better than any talking head in the media or falsified financial report. With that in mind, I will detail out one of my current tools which help to gain a peek into the future; the SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE).
After looking at the chart of the SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE), I found it to be quite interesting and ahead of the markets to the downside. We have all heard how in 2007 the markets topped out and then rolled over in the fall of 2008, as Lehman Brothers went under. The SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE) had peaked out many months before the S&P 500, in fact it topped in December of 2006 (almost 1 year ahead). In 2010 this ETF put in a high basically around the same time as the rest of the major indexes, and then the S&P 500 had a 17% correction. However, in 2011 the Regional Banking ETF made its high early in the year (January 2011), while the markets didn’t top out until May 2011. That high was followed by a decline in the S&P 500 to the tune of almost 22% (some say bear market status).
Since then the SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE) has basically been in lock-step with the overall markets and had a nice ascent higher. That is until a few months ago when it made a high of $42.79. This security has since made a lower high and has clearly diverged from the S&P 500. You can even make a case that there is a potential head and shoulders being formed on the daily and weekly charts (depends where you draw your neckline). All these facts I have presented have nothing to do with fundamental analysis and is purely based on technicals and chart reading. So while the pundits and talking heads on TV carry on with their opinions, I will look to the charts as the real crystal ball, and eliminate all that white noise. Keep a close eye on the KRE chart as it appears to be talking to us right now.