Banks sit at a critical technical level even after Fed hike

The Federal Reserve just hiked interest rates for the eighth time of this tightening cycle.

Banks again failed to rally. The KBE bank ETF hit session lows in its third negative day in four, while the KRE regional bank ETF fell for its fourth straight session.

Their underperformance this year has them perched at a key critical level and the next move could determine whether it's a boom or bust for the banks, says Miller Tabak equity strategist Matt Maley.

"The thing that concerns me is that not only has it been stuck in a sideways range as the market has rallied all year but now in the last couple of weeks it's dropped below its 200-day moving average. This has been key support for the group," Maley told CNBC's "Trading Nation" on Tuesday.

The KBE ETF, which holds Citigroup and Bank of America among others, broke below its 200-day moving average again earlier this week. It has fallen more than 2 percent since Monday.

"This most recent pullback, it's happening when things should be positive for the group. The broad market is hitting all-time highs, you've got long-term interest rates moving higher, we're even seeing a slight steepening of the yield curve and yet these bank stocks continue to roll back over," said Maley. ""If it pulls further below [its 200-day moving average], that's going to be a big yellow warning flag for the group."

Higher rates expand banks' net interest margins, meaning they make more money on what they lend than what they pay in interest to borrow. A Fed hiking the fed funds rate again, as it's expected to do on Wednesday, would typically help banks.

To Michael Binger, president of Gradient Investments, weakness in the banking sector presents the chance to jump in.

"I think this recent little bit of a sell-off here is an opportunity and we think financials look good as you look forward here," said Binger on "Trading Nation" Tuesday. "Their earnings and profits continue to grow, I think they're increasing their capital returns to shareholders in the form of dividends and buybacks so overall I like this sector."

Banking underperformance has Binger adding to his position in the banks. He owns JPMorgan, Citigroup, and Bank of America.

Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more