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KeyCorp, SunTrust, and the Move Back to the Banks

As banking stocks take a breather, is it time for traders to return?

by 3/26/2012 8:15:00 AM
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Late strength helped keep a number of regional banks from finishing in oversold territory on Friday. But if buyers don't stick around when the new week begins, many of these bank stocks could be back on their way lower.

Shares of KeyCorp (KEY) closed lower for two days in a row after easing toward technically oversold levels ahead of the final trading day of the week.

The last multi-day pullback in KEY, at the beginning of March, was the prelude to a rally of more than 13%, as the stock closed higher for nine out of the next 10 trading days.

KEY has been trading above its 200-day moving average since the second half of December. After settling into a trading range in mid-January, the shares broke out above this range two months later to reach new six-month highs. The current pullback in the stock comes as traders and more active investors take profits from those gains.

Also pulling back from significant long-term highs are shares of Fifth Third Bancorp (FITB). FITB had closed lower for two days in a row heading into Friday's session, and a bounce of a 0.33% appears to have been all that stood in the way of a return trip to oversold territory for the stock.

Crossing into bull market territory at the beginning of February, SunTrust Banks (STI) is pulling back for the second time since crossing above its 200-day moving average. The first instance, shortly after the beginning of the month, featured a gain of more than 13% as STI closed higher for six out of seven trading days.

For traders looking to avoid single stock risk, exchange-traded funds (ETF) representing bank stocks include the Financial Select Sector SPDR ETF (XLF) and the 2-to-1 leveraged ProShares Ultra Financials ETF (UYG). Note here, however, that weakness is not nearly as widespread, with both XLF and UYG returning to neutral territory midway through trading on Friday after closing lower for the previous two sessions. To this end, the KBW Regional Banking SPDR ETF (KRE) may be more worth a look. KRE has closed lower for three out of four days in a row above the 200-day moving average, ending oversold on Thursday and just outside of oversold territory on Friday.

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Disclaimer: The views represented in this column are those of the individual authors only, and do not necessarily represent the views of Schaeffer's Investment Research.

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