Wednesday, August 5, 2009

Money Center Banks Surge as Regional Banks Lag

While the S&P 500 index is down about 0.8% as I type this, banks are faring considerably better than the index today, continuing a recent trend. Buying interest across the bank universe is splintered, however, with strong demand for money center banks and less interest in regional banks.

The chart below compares the performance of two popular banking ETFs, KBE, which is based on a broad-based bank index, and KRE, which is based on a regional banking index. The contrast is stark. Not only is KBE up 2.2% today while KRE is down a fractional amount, but this has been a recurring theme since the end of April, when regional banks became a laggard. Note that both banking ETFs have trailed the performance of the full financial sector, as represented by seemingly ubiquitous XLF.

During the last two days, sellers have been unable to put a dent in either real estate or financials. Until this pattern reverses, stocks are not going to be able to correct.

[source: StockCharts]

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