Banking on Strength

Yesterday I talked about some areas that are struggling to hold onto their post-election gains. The list has grown following today's selloff.

One group that’s been unfazed by this week’s volatility is financials.

Today, let’s flip the script and focus on an industry showing serious resilience.

Banks have been one of the best-performing groups over the past week, positioning themselves as leaders in the current environment.

The S&P Banks ETF $KBE is on the verge of completing a textbook reversal pattern relative to the S&P 500.

The ratio is piercing through the upper ends of this base as we speak.

The 200-day moving average has been flat all year but is curling up, suggesting that the trend could be at the early stages of reversing.

If this base breakout in KBE/SPY is a valid one, then we should expect more leadership from bank stocks in the future.

And when you look under the hood at the subsector, it’s all about the big boys. The largest banks continue to trend the best.

Our custom index of the six largest US banks is breaking out of a 17-year base to new all-time highs.

It hasn’t even hit a target yet. I think this trade is just getting started.

JP Morgan, Wells Fargo, Morgan Stanley, and Goldman all went out at new all-time highs this week.

Even Bank of America and Citi are making new cycle highs. Every single one of these banks looks great.

We just put a trade on BAC in Breakout Multiplier and sold half for a triple almost immediately. 

We’re going to keep looking for bullish opportunities within financials, and the banks specifically.

I expect participation to keep broadening down the cap scale to the regional and community banks. More and more are working every day.

And there is also information here as it relates to the broader market.

If the banks are making new highs it speaks to a healthy risk appetite. Banks are classic bull market stocks.

If they are doing well, the market and the global economy are definitely not falling apart… In fact, it’s quite the opposite. 

When the banks are leading it means all is good in the world.  

And that’s exactly what the price action is telling us today.

Have a great weekend.

Alfonso.