Regional Banking Sector is an Outlier Downtrend
The regional banking sector remains under selling pressure.
We use the KBW Nasdaq Regional Banking Index to represent the sector. The Index includes 50 stocks and is compiled, maintained and calculated by Keefe, Bruyette & Woods, Inc. "KBW" and Nasdaq Inc. and is composed of companies primarily engaged in US regional banking activities.
The chart is the price trend of the index with a linear regression channel to highlight the trend, and how wide it spread out. A Linear Regression Line is a straight line that best fits the prices between a starting price point and an ending price point used to determine direction.
The middle red line is the linear regression and gives us a visual representation of the linear trend.
The outer channel lines are two standard deviations above and below the regression line.
As you can see, the regional bank index is well below two standard deviations, which in probability theory should capture 95% of the trend.
Standard deviation tells us how spread out the data is. It is a measure of how far each observed value is from the mean.
As seen below, the yellow area is two standard deviations and 95% of data.
Although standard deviation is used a lot for investment management, market trends don't follow the normal bell curve.
The waterfall declines have been strong enough to move the basket of 50 regional bank stocks outside three standard deviations.
The regional bank sector breaching below the lower channel of three standard deviations suggests the the downtrend in regional banks are an outlier.
This visual representation of the trend signals the high level of risk in regional banks driven by the failure of Silicon Valley Bank acquired by First–Citizens Bank & Trust Company and Signature Bank acquired by Flagstar Bank, N.A..
Clearly the selling pressure from the market signals concern for more trouble ahead. We have no positions in regional bank stocks.
Mike Shell is the founder and Chief Investment Officer of Shell Capital Management, LLC, and the portfolio manager of ASYMMETRY® Managed Portfolios. Mike Shell and Shell Capital Management, LLC is a registered investment advisor focused on asymmetric risk-reward and absolute return strategies and provides investment advice and portfolio management only to clients with a signed and executed investment management agreement. The observations shared on this website are for general information only and should not be construed as investment advice to buy or sell any security. This information does not suggest in any way that any graph, chart, or formula offered can solely guide an investor as to which securities to buy or sell, or when to buy or sell them. Securities reflected are not intended to represent any client holdings or recommendations made by the firm. In the event any past specific recommendations are referred to inadvertently, a list of all recommendations made by the company within at least the prior one-year period may be furnished upon request. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities on the list. Any opinions expressed may change as subsequent conditions change. Please do not make any investment decisions based on such information, as it is not advice and is subject to change without notice. Investing involves risk, including the potential loss of principal an investor must be willing to bear. Past performance is no guarantee of future results. All information and data are deemed reliable but are not guaranteed and should be independently verified. The presence of this website on the Internet shall in no direct or indirect way raise an implication that Shell Capital Management, LLC is offering to sell or soliciting to sell advisory services to residents of any state in which the firm is not registered as an investment advisor. The views and opinions expressed in ASYMMETRY® Observations are those of the authors and do not necessarily reflect the position of Shell Capital Management, LLC. The use of this website is subject to its terms and conditions.