Normally, being on the same page with everyone else in the investing and trading community would be a bad thing, as too many people are chasing the same stocks. The silver lining however is, most traders shunned banks and financials over the past week or more. Price action pulled back. This is precisely what we need.
“This year’s results show that, even during a severe recession, our large banks would remain well-capitalized,” Fed Governor Jerome H. Powell said in a statement. “This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough.” Source Reuters
Given investors shunned the banks last week and XLF is strong this morning, we anticipate banks could see a bullish day or two.
Citigroup is debatably the best chart, as it trades above breakout levels and extended trend lines. The latter lends supports. Additionally, we would consider this a “PBBO” pullback to breakout condition; we just need to see price action confirm a bullish follow through day is in play. The stock is up (0.53%) in pre-market trading.
Morgan Stanley has the strongest financials balance sheet, thus Investors Business Daily gives it a #1 ranking. Major support is just below at “VBP” Volume by Price levels 44.00 (+/-). The stock is up (+0.20%) in pre-market trading.
We also have a position in Bank of American, which pulled back into its daily triangle pattern over the past week. While we are a bit disappointed, it should follow the other kids to the playground today. The stock is up (0.78%) in pre-maket trading.
The take away is this. While banks passed the first round of “quantitative” tests, there are still “qualitative” tests next Wednesday. Given the lack of follow through two weeks ago, when banks first broke out, we will consider selling into strength. We had high hopes for financials. So far they haven’t performed as anticipated.
Happy Trading – Vinny