Financial Stocks That Are Bucking The Trend

By Cory Mitchell | November 28, 2011 AAA

With the S&P 500 index down 8.9% year to date, and the financial sector in even worse shape, there are four financial stocks which have managed to perform relatively well this year - one of which has blasted out the competition. The Amex SPDR Financial Sector Fund (NYSEArca:XLF), which reflects the performance of the financial sector, is down 27.73%, to $11.78 on Friday from $16.30 at the beginning of the year. While the broader market struggles to find buying support, many of the financial stocks have been in free fall. The following four stocks have not only held up well, but are all showing a positive return for the year. This shows great resilience and buying support in these stocks, providing relative safety and outperformance compared to the broader index and other financial sector stocks.

Discover Financial Services (NYSE:DFS) has been a star performer, up 21.93% to $22.96 from $18.83 year to date. The company, which offers banking and payment services, was very strong in the first half of year, peaking in July at $27.92. Since then, the stock has been consolidating in a triangle formation. On-balance volume has levelled off but has not significantly declined, indicating there is still buying pressure during this consolidation. A rise above short-term resistance at $26 would break the triangle to the upside and indicate a re-test, and likely surge past the July $27.92 high. On the other hand, a drop below $22 would break the formation to the downside, indicating more downside to come. (For more, see On-Balance Volume: The Way To Smart Money.)

The Chubb Corporation (NYSE:CB) has also been doing well this year. Up 5.96% to $63.82 from $60.25 year to date, the stock still remains strong compared to almost all its financial sector competition. CB remains above the 200-day moving average, which will likely provide support if the stock price retreats further. The current price of $63.82 sits almost exactly on the 50-day moving average. Given that on-balance volume is slighly declining, the price could slide through the 50-day and towards the 200-day moving average, which provides a potential buying opportunity. $55.39 is the major low seen in August, a drop back towards that level is a significant warning signal that strength is leaving the stock.

American Express (NYSE:AXP) is up 3.69% to $45 from $43.40 at the start of the year. It has been strong compared to its competition since the stock began to rise in March, eventually peaking at $53.80 before retreating. When the market collapsed in August, AXP also fell, but it found support at $42. This is the same support level prominent throughout the first three months of the year. When the stock declined in October it found support at $41.30. Therefore, a support band is present between $42 and $41, presenting a buying opportunity if the stock continues to decline towards this price band in the short-term. American Express is below both the 200-day and 50-day moving averages, indicating a further decline is not out of the question. Yet, the on-balance volume indicator shows there is still significant buying interest in this stock.

The Bottom Line
Even in a beaten down sector like the financials, there are stocks which are performing well when compared to the overall market. All four have seen a pull back in price recently and this may present potential buying opportunities at the levels indicated. On the other hand, it is possible these stocks will eventually succumb to the overall market selling pressure and breach support. If any of the stocks breach the primary support levels mentioned, it is signal that strength is leaving the stock. (For more, see Support & Resistance Basics.)
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At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.

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