STI Break OutShares of regional bank SunTrust (STI) have recently broken out to new highs and looks to have some room to run further.
I'm jumping in via October 19 $77.5 calls (the $75's would be fine, too... a $75/$80 spread could help lower cost), as it takes me thru the next earnings report on Oct. 18. That said, I'll likely exit prior to the report to capture the increase in premiums that occurs leading in to an earnings release, as well as protect profits (assuming the trade works out as planned, of course).
VFH
Buy the Banks, Suckers!Every time I turn on CNBC, FBN, or the like, I hear a pundit or analyst pounding the table to "buy the banks." The go on to ramble a spiel about low valuation rations (P/B, P/E, P/FCF, etc), rising rate environments, yield curve inversions, and other reasons that they should outperform the markets going forward. But who's biting?
A quick glance at the SPDR financial ETF - XLF - and you will likely arrive at the conclusion that this is a sell, not a buy. We've broken short term trends (red dotted lines), intermediate term trend (orange dotted line) from 2016 lows, and are approaching a trend line (green dotted line) from the recession lows nearly a decade ago. Even worse, it looks to have formed a double top at the $30 level, the first peak coming in 2007.
Until there's a bid to reverse trend, this is a hard sell. Support looks to come in around $25. If that fails, the next support is around $21, but that's crash-level support.
Of course, one must ponder... if the banks are rolling over, how well can the broader markets hold up? Is this the warning shots of a larger correction in the markets? Hmm...
The Financial SectorThe Financial Sector
The following ETFs are related to the Financial Sector. The ETFs track different sections of the financial sector as noted. There are many more ETFs in financial subsections for the USA and international equities. Included for each ETF are the symbol, the total Assets Under Management (AUM), the Number of Shares in circulation (Shares), the Average daily Trading Volume (Avg Volume) for the 3 months prior to 7/12/2017, the Expense Ratio, and the Bull//Bull type as well as the leverage ratio.
I have tried to copy these data carefully but cannot be held responsible for any mistakes made. These data are important because high volume ETFs are liquid which means you can get in and out quickly and there is a smaller spread between the bid and ask price. This affects the actual profitability of the entry and exits trades. The same considerations applies to put and call options. Use the highest volume ETF that you can.
The risk of the 2x and 3x Leveraged ETFs is that the 2x or 3x ration only applies to one trading day. After that, the ratio declines daily due to the rebalancing effect. NEVER hold 2x or 3x ETFs long term as they fall in value over time. For long shorts (in a non margin account or 401k), just buy the 1x Bear ETF. Unfortunately FAZZ is very low volume.
XLF AUM 25.2 Billion, Shares 1,006 M, Avg Volume 73.9 M, Expense Ratio 0.14%, 1x Bull
Broad sector exposure.
VFH AUM 6.0 Billion, Shares 94.7 M, Avg Volume 0.8 M, Expense Ratio 0.10%, 1x Bull
***Note VFH tracks the MSCI US Investable Market Financials 25/50 Index
IYF AUM 1.8 Billion, Shares 16.4 M, Avg Volume 377,765, Expense Ratio 0.44%, 1x Bull
***Note IYF tracks the Dow Jones U.S. Financials Index
UYG AUM 847 Million, Shares 8.0 Million, Avg Volume 46,208, Expense Ratio, 0.95%, 2x Bull Leveraged
***Note UYG tracks the Dow Jones U.S. Financials Index
FAS AUM 1.4 Billion, Shares 29.3 M, Avg Volume 2.7 M , Expense Ratio 1.05%, 3x Bull Leveraged
***Note FAS tracks the Russell 1000 Financial Services Index
FAZ AUM 197 Million, Shares 12 M, Avg Volume 1.7 M, Expense Ratio 1.1%, 3x Bear Leveraged
***Note FAZ tracks the Russell 1000 Financial Services Index
SKF AUM 43.7 Million, Shares 1.7 Million, Avg Volume 38,138, Expense Ratio, 0.95%, 2x Bull Leveraged
***Note UYG tracks the Dow Jones U.S. Financials Index
FINZ AUM 173.0 Million, Shares 0.1 Million, Avg Volume 1,766, Expense Ratio 0.95%, 3x Bear Leveraged
***Note UYG tracks the Dow Jones U.S. Financials Index
FINU AUM 27.1 Million, Shares 0.4 Million, Avg Volume 10,327, Expense Ratio, 0.95%, 3x Bull Leveraged
***Note UYG tracks the Dow Jones U.S. Financials Index
FAZZ AUM 1.7 Million, Shares 0.1 M, Avg Volume 310, Expense Ratio 0.58%, 1x Bear
***Note FAZ tracks the Financial Select Sector Index VERY LOW VOLUME
I put these here for your and my convenience so we can use the elf which fits our needs best. If you know of a higher volume 1x bear etc for this sector, let me know.
For premarket US traders, you can go to STOXXdotcom in the morning and look up symbol SX7P (STOXX® Europe 600 Banks) as a leading indicator of how US banks will be doing.
