Earnings beat or miss, Miller Tabak equity strategist Matt Maley is watching one key level in the space to determine whether a big bank breakout is coming.
“On a technical basis, you look at the KBE bank ETF, the $40 level, that had been very, very important support,” Maley told CNBC’s “Trading Nation” on Tuesday. “It finally broke down below it when everything else broke down in December.”
The KBE fell below $40 in mid-December for the first time since September 2017. At the December’s lows, the ETF had fallen to $34.92. Since that trough, it has rallied 16 percent to $40.52.
“Old support becomes new resistance, so if it can regain this level in a more meaningful way, in other words get a little bit more upside follow-through, I think it will finally show that the banking stocks have finally been washed out and all the bad news is priced into the group,” said Maley.
Banks’ sharp declines over the past three months have made the group attractive as investor preferences shift, according to Michael Bapis, managing director at Vios Advisors at Rockefeller Capital Management.
“We’re in a sector now where the whole rotation to fundamental value is coming into play,” Bapis said on “Trading Nation” on Tuesday. “Their balance sheets are super strong, their profitability is rising, and if you look at historical P/Es on many of the banks they’re trading eight to 10 times historical earnings, and that’s way below what we expected to be at this time.”
The KBE ETF trades at 10 times forward earnings, below the S&P 500’s 15 times multiple. The ETF’s valuation fell to as low as 8.8 times in December, its cheapest valuation since late 2011.
“You’re getting good dividend yields, there’s a very favorable tax environment for them, and we haven’t even seen the profitability that will take place for the change in the tax overhaul,” Bapis added.