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The One Regional Bank ETF Traders Should Like

ETF Professor

It is one of 2018's most disappointing trends. Regional banks, an industry group usually believed to be positively correlated to rising Treasury yields, are getting smacked even as the Federal Reserve boosts borrowing costs.

The Fed has hiked interest rates three times this year with market observers widely expecting another increase of 25 basis points in December. Despite that, the SPDR S&P Regional Banking ETF (NYSE: KRE), the largest regional bank exchange traded fund (ETF), is down almost 10 percent year-to-date and more than 13 percent this month.

What Happened

KRE currently resides 19.59 percent below its 52-week high and 14.43 percent below its 200-day moving average, both of which can be seen as bearish signals. Some investors are not sticking around to see what happens next.

KRE “has plunged nearly 20 percent since reaching a record on June 8, with investors pulling $61 million from the fund Monday. More than $280 million has left the ETF, the largest that tracks regional banks, this month,” reports Bloomberg.

Why It's Important

The one regional bank ETF that does look attractive is the Direxion Daily Regional Banks Bear 3X Shares (NYSE: WDRW). WDRW attempts to deliver triple the daily inverse returns of the S&P Regional Banks Select Industry Index (SPSIRBKT), the same index KRE tracks.

While leveraged ETFs, such as WDRW, should not be held for weeks or months on end, WDRW's month-to-date gain of almost 54 percent is probably tantalizing for some traders. Owning the ETF over the past week, a more manageable time frame for holding a leveraged ETF, returned more than 17 percent.

What's Next

Traders have recently been slow to embrace the bearish WDRW. Since the start of the current quarter, the fund has not seen any inflows or outflows. With three more trading days left in this week, that could change because almost 43 percent of the components in WDRW's underlying index report third-quarter earnings this week.

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