A Huge Chance for Another Sell-Off in Banking Stocks
I believe there is a chance for one more short selling in S&P ETFs. This time I am going to focus on hedging U.S. banking systemic risks. Media report on a possible downgrade of several large U.S. lenders by Fitch Ratings, including JPMorgan Chase (JPM). These rumours made banking stocks cheaper on august 15. An unnamed Fitch analyst warned that the agency may take a downgrade step soon regarding a dozen of giant American banks. This move could be justified after Moody's agency decided to cut the ratings of ten mid-sized U.S. banks referring to reasons like "funding risks" and "weaker profitability".
U.S. Federal regulators are also here. Martin Gruenberg, a chairman of Deposit Insurance Corporation, said that his office is ready to propose new rules for regional banks to prepare the so-called "living wills", which are detailed plans on how a particular lender would wind up its business in an emergency case of falling down. Another bit of "encouraging" news, right? Thus, SPDR S&P Regional Banking ETF (KRE) quickly plunged by 3.33% yesterday. Financial Select Sector SPDR Fund (XLF), which is using full replication techniques to repeat performance of leading banking shares on Wall Street, has been affected as well, losing 1.84% during the same trading session. JPM lost 2.55% of its market value in one day.
Looking at the charts and news, I see a huge chance for another wave of sell-off coming soon. If so, then I am selling KRE for the beginning, with a stop loss order placed 50 points above 50.00 round figure, with XLF being the next candidate for a short selling.
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