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Cramer: 3 Banks That Should Rally Into Year-End

Tuesday, 25 Jun 2013 | 6:46 PM ET
Off the Charts: Regional Bank Picks
Tuesday, 25 Jun 2013 | 6:45 PM ET
A look at what Bob Lang of Explosive Options.net thinks about regional banks, which benefit from higher interest rates.

(Click for video linked to a searchable transcript of this Mad Money segment)

Now that panic generated by higher rates in the market has started to ebb, at least a little bit, Cramer thinks it's a good time to think about which stocks may actually benefit from those higher rates.

And the Mad Money host believes that the immediate beneficiary may be the regional banks. "I've told you before that this group could be poised for a major rally," Cramer said.

As a fundamental investor Cramer always looks at the changes in dynamics that could improve the business environment. And higher rates could really drive the bottom line for banks.

That's because the spread or net interest margin between what banks are paying depositors on CDs versus what they're making in the bond market is growing incrementally larger.

"It's especially the case with the five-year Treasury, where banks are now making almost double the money on that note than what they're paying you for five year CDs," Cramer said.

Although the thesis seems logical, before putting money to work, Cramer always likes to consult the charts to see if they confirm the thesis. For insights on regional banks Cramer turned to technical analysis from Bob Lang, the founder and senior strategist at Explosive Options.net.

Dennis Hallinan | Archive Photos | Getty Images

Looking at the chart of the KBW Regional Banking Index, Lang sees positive developments.

Not only is the regional bank index above all of its key moving averages, Lang says it continues to make higher highs and higher lows – a bullish trend. Also he says the Moving Average Convergence Divergence line is flashing a buy signal.

That seems like confirmation, but Cramer usually prefers to hold stocks of individual companies rather than a broad ETF. Therefore he asked Lang to dig down into the group and identify specific regional banks with particularly strong chart patterns.

They follow:

First Lang finds the chart of Regions Financial notworthy. According to Lang, during the broad sell-off over the last month and a half, Regions held up extremely well, on high volume. This suggests to him that there aren't many sellers in the stock, and more important, big institutional investors may actually be accumulating shares.

Lang also likes KeyCorp. Just like in the KRE, he sees a pattern of higher highs and higher lows. Also, Lang says there have been big surges in volume all year; a sign that Lang says indicates big institutional investors are buying Key. Ideally, Lang is a buyer on a pullback to $10 – and going forward he sees the stock trading in the $12 range by the end of the year.

Looking at Huntington Bancshares Lang says this stock has shown tremendous strength relative to the banks in general, and he thinks that strength is drawing in the big institutional buyers. On its daily chart, Lang believes that Huntington should have a powerful floor of support at $7.15 and perhaps more important, he also believes the stock broke out above its ceiling of resistance in the $7.60s, which could mark the beginning of the next leg higher.

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All told, the charts appear to be confirming Cramer's thesis. That is, higher interest rates should drive regional banks higher.

Digging down into the group both the fundamentals and Bob Lang's interpretation of charts suggest that Regions Financial, KeyCorp and Huntington Bancshares should be able to rally over the second half of the year.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

  Price   Change %Change
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RF
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KEY
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HBAN
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