Bank ETFs Flash Warning Signs

The financial sector is a key component of economic growth and recent signs of weakness in major banking stocks have investors on edge.

The SPDR S&P Bank ETF (NYSE:KBE) tracks 55 of the nations largest banks with top holdings including Wells Fargo(NYSE:WFC) and Bank Of New York Mellon (NYSE:BK).

This ETF currently has $2.6 billion in total assets and charges an expense ratio of 0.35 percent.

Recent scrutiny over capital requirements combined with heightened sensitivity to losses on mortgage settlements has sent this sector reeling in the last two months.

Since hitting a high in March, KBE has now lost 11 percent and broken below its 200-day moving average.

KBE is now in striking distance of its January low and a break below that level could signal additional selling is on the horizon.

Only time will tell if this key support area will hold.

Bank of America Corp (NYSE:BAC) is one of the representative holdings in KBE and has been a leader on the downside this year despite having recently announced a plan to increase its dividend and buy back shares.

Clearly that hasnt been enough to satisfy investors that the bank is on solid footing with regards to profitability.

This weakness has also filtered down from the nations top banks to the regional level as well. The SPDR S&P Regional Banking ETF (NYSE:KRE) tracks 81 individual stocks of smaller banking institutions.

Prior to this sell off, KRE has actually been outperforming KBE by a modest margin over the last year. However, that gap has closed considerably as the weakness has progressed in recent weeks.

The nervousness in banking stocks may also be enhanced by falling interest rates, which has propped up bond prices and signaled that investors are looking to safe haven assets during this uncertain period.

Ultimately the banking sector is going to need to prove that it can hold these near-term levels or risk slipping into the abyss.