To The Moon

The recent collapse of SVB Financial Group (SIVB) and Silvergate Capital may present an opportunity for a Contrarian to buy $SPDR S&P Regional Banking ETF(KRE)$ SPDR S&P Regional Banking ETF (KRE) at a bargain. Let's take a closer look.

Introduction to KRE

SPDR S&P Regional Banking ETF (KRE) is a fund that tracks the performance of the S&P Regional Banks Select Industry Index. It invests at least 80% of its total assets in the securities that make up the index, representing the regional banks segment of the S&P Total Market Index. Please note that SIVB is/was one of them. The table below shows the top holdings of KRE as of 09 Mar 2023.

KRE Top Holdings

Bank stocks took a hit with the collapse of SVB and Silvergate

The recent collapses of SVB Financial Group and Silvergate Capital have caused a dip in bank stocks. KRE has fallen as low as 48.44 and closed at 50.69 on 10 Mar 2023, down 16% for the week.

Possibility of further drop in price due to bank run?

There is a possibility that a bank run may start this week, which could cause the price of KRE to drop further. This presents an opportunity to pick up call options at a lower price

Technical analysis shows oversold conditions and potential reversal?

KRE support level

Based on the day chart, the next support region for KRE should be around 45 (see chart above). The Relative Strength Index (RSI) is very low at 16.84, indicating that KRE is oversold. With the Tom DeMark indicator at a count of 8, we will likely see a count of 9 on Monday (see chart below) and a perfect buy forming, indicating a bullish reversal may occur. It's important to note that more downside is expected so a perfect buy may form but a reversal may not happen as BAD NEWs will dictate the movement more than any Technical Analysis can indicate.[Blush]

KRE closed at TD count 8 last Friday. When the count reaches 9, a reversal may occur

However as a strategy, buying call options at a strike price of 45, expiring in 2 weeks $KRE%2020230324%2045.0%20CALL$ $KRE 20230324 45.0 CALL$  or at the end of the month $KRE%2020230331%2045.0%20CALL$ $KRE 20230331 45.0 CALL$  , may be a high risk but worthwhile move while waiting for KRE to recover. Quick profits should be taken when available in this case and I will only invest money that I can afford to lose.[Allin]

Government intervention  

It's unlikely that the government will let other regional banks to suffer the same fate. They will likely step in to prevent further damage to the economy and stabilize the situation while protecting depositors and investors. Let’s wait for more news for any Regulatory intervention and further action from Federal Deposit Insurance Corporation (FDIC) intervention.

Contrarian Investing: Buy When There's Blood in the Streets

According to the credo of contrarian investing, the worse off the market is, the better the opportunities are to profit. Nathan Rothschild, a 19th-century British financier and member of the Rothschild banking family, famously said, "the time to buy is when there's blood in the streets." This is an opportune time to take advantage of the dip in bank stocks.

Recap on TD9 and perfect buy/bullish reversal

"TD9" is a technical indicator created by market analyst Thomas DeMark. It's based on identifying the patterns of price movements in financial markets and using those patterns to predict future price movements.

The "perfect buy bullish reversal" is a term used in technical analysis to describe a situation where the market has been in a downtrend but then shows signs of reversing and moving into an uptrend. A "perfect buy" refers to a situation where the reversal is considered to be particularly strong and reliable.

When the TD9 indicator identifies a potential bullish reversal, it can be a signal to traders and investors that the market is likely to start moving upwards. If the bullish reversal is considered a "perfect buy," it can indicate that there is a high probability of strong and sustained price increases. However, as with any technical analysis tool, it's important to use other indicators and analysis methods to confirm any signals before making trading decisions.