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Real Time Insight

Last week I noticed the S&P Regional Banking Index ETF (KRE - ETF report) breaking down below its 40-week moving average, roughly equivalent to the 200-day.

Here's a look at what I think could be the most important chart to discuss this month, as far as index or ETF price charts go...



The KRE ETF is designed to be equal-weighted like the underlying index, with an average market cap of $4.1 billion and an index weighting of about 1.4% for each component. Some market caps in the top 10 holdings are notably bigger than the average with Huntington Bancshares (HBAN - Analyst Report) at $8 billion and M&T Bank (MTB - Analyst Report) at $16 billion.

But with 86 holdings there are quite a few small caps in there. And that's what brought KRE so closely to my attention last week as I dissected the weakness in the Russell 2000 index, which has a Financial sector weighting of about 24%.

My question of the week for this "chart of the month" is this: Is the weakness and possible topping process in regional banks a sign of economic pessimism, or is it more about the yield curve falling flat again instead of steepening, the way banks would prefer, to increase their net interest margin?

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