The bullish momentum that dominated the financial sector in 2016 was able to continue for the first couple months of 2017. However, since the middle of March, it has seemed as though the bulls were losing their conviction as the uptrend started to move sideways. Recent strength on the charts of key financials is now suggesting that the bulls are taking interest again and that the uptrend could be poised to continue. (For more, see: Who Let The Air Out of the Financials?)

Financial Select Sector SPDR Fund

One of the most common exchange-traded funds that is used by retail investors for tracking the movement of the financial sector is the Financial Select Sector SPDR Fund (XLF). Fundamentally, this fund comprises 67 holdings and carries a reasonable gross expense ratio of 0.14%. Taking a look at the chart below, you can see that the price was able to find support near the dotted trendline. Based on past price action, it is evident that this is a level that most active traders are paying attention to. The recent bounce off of the support combined with the bullish crossover between the MACD and its signal line will act as confirmation of a move higher. From a risk management perspective, traders will likely set their stop-loss orders below $23 in case of a sudden pullback. (For more on this topic, check out: The 4 Largest Financials ETFs)

Chart showing the trailing-12-month performance of the Financial Select SPDR Fund (XLF)

Bank of America Corporation

Bank of America Corporation (BAC) is one of the most widely followed financial companies in the world. With a market cap of $236.5 billion, it is in an elite group amongst fundamental-based investors, but based on the strong uptrend shown in the chart, it is apparent why this company is so popular with active traders as well. It is clear that the bulls have been in control of the long-term momentum since the 50-day and 200-day moving averages crossed back in September 2016. The recent period of consolidation has resulted in the price shifting toward the support of the 200-day moving average, which will likely be the level that most traders will keep an eye on and the level at which they will try to find entries as close to as possible. Like the chart of XLF shown above, the MACD for Bank of America has also crossed above its signal line, which is a common buy signal that could lead to a move higher from here. (For more, see: Can Bank of America Sustain Its Latest Rally?)

Chart showing the trailing-12-month performance of Bank of America Corporation (BAC) stock

Citigroup Inc.

One of the most interesting charts found anywhere in the public market currently belongs to Citigroup Inc. (C). As you can see below, a well defined ascending triangle has formed on the chart, and the recent move above the upper trendline suggests that the price could be headed higher from here. Active traders will likely use this recent breakout as a signal to enter their buy orders, and most will set their target prices equal to the entry price plus the height of the pattern, which in this case would put the target around $69. (For more, see: Triangles: A Short Study in Consolidation Patterns.)

Chart showing the trailing-12-month performance of Citigroup Inc. (C) stock

The Bottom Line

The financial sector was one of the strongest out of the gate to start the new year, but since March, the upward momentum has lagged. Recent price action near key levels of support combined with bullish MACD crossovers suggest that this sector could be worth adding to your radar again. (For more, see: This ETF Suggests Now Is the Time to Buy Financials.)

At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

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