Financial stocks have been consolidating for approximately five months following a sharp rally in the first half of 2009. Recently, volatility in the financial sector has been dying down as money and interest rotate to other sectors such as commodities. However, 2010 has started off with a bang, and the financial stocks may be finally clearing their consolidation ranges.

IN PICTURES: Eight Ways To Survive A Market Downturn

The chart for the Financial Select Sector SPDR ETF (NYSE:XLF) summarizes what many of the bank stocks and financials look like. XLF has been in a consolidation since August, as it works off its prior rally. It has been trading in a very tight range recently, and the 20- and 50-day moving averages have practically turned sideways. However, the beginning of the year has started with a move above the declining trendline that was framing the upper part of the consolidation. While XLF has yet to set new highs, the recent move is a positive development and could be the beginning of a new rally in the group. (For more, see Track Stock Prices With Trendlines.)


Goldman Sachs Group (NYSE:GS) is generally considered the leader in this sector. It recently cleared a descending trendline that was acting as resistance. The recent trading range in GS could be termed a falling wedge, which is simply a consolidation. The move out of this range on increasing volume hints at a change in character, and with GS reclaiming its 50-day moving average, it could be signaling a resumption of the uptrend. GS has some resistance near $181 that could slow the company down, but it appears that in the grand scheme of things, GS has turned bullish again.


JP Morgan Chase and Co. (NYSE:JPM) is another financial stock that is starting to move higher on increasing volume. JPM has also been in a lengthy consolidation and may have trapped some bears with a false breakdown in mid December. Often when a stock falls out of a base and then reverses to get back in, it traps some early shorts. These shorts are then forced to cover as the stock continues higher. JPM is also back above its 50-day moving average and above the most recent descending trendline. This action is also bullish and the level to watch on the downside is the $40-41 area. JPM appears to be headed for a retest of the highs near $48 as long as it holds the recent low on any weakness.


Capital One Financial Corp. (NYSE:COF) is a financial firm that is already close to its recovery highs. While COF remains in its base, it has held up better than most of the other financials. Drilling down into this sector a bit more, the credit card companies have been performing well, and COF could emerge from this base if it can clear $41. This would set a higher high and possibly pave the way for a full-fledged breakout.


Bottom Line
The financials remain a very important group to watch, and while many have been predicting an end to the current rally, these companies appear to be just getting started again. If the financials can continue to build strength, it could lead the way to even higher moves in the near term. Of course, there is always the possibility of a false breakout, which is why it is important to keep an eye on the charts. Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of this writing, Joey Fundora did not own positions in any of the stocks mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    A Complete Guide to Tax Loss Harvesting With ETFs

    Using exchange-traded funds (ETFs) to harvest tax losses can be a smart way to maximize your portfolio's tax efficiency.
  2. Mutual Funds & ETFs

    Why ETFs Are a Smart Investment Choice for Millennials

    Exchange-traded funds offer an investment alternative to cost-conscious millennials who want to diversify their portfolios with less risk.
  3. Investing

    Asset Manager Ethics: Acting With Competence and Diligence

    Managers must make investment decisions based on their personal investment process, which in turn should be based on solid research and due diligence.
  4. Mutual Funds & ETFs

    Should Investors Take a BITE Out of This New ETF?

    ETF BITE offers a full menu of restaurants. Is now the right time to invest?
  5. Financial Advisors

    5 Things All Financial Advisors Should Know About ETFs

    Discover five things all financial advisors should know about ETFs, including when ETFs may be a better choice for your clients than mutual funds.
  6. Stock Analysis

    The Top 5 ETFs to Track the Nasdaq in 2016

    Check out five ETFs tracking the NASDAQ that investors should consider heading into 2016, including the famous PowerShares QQQ Trust.
  7. Chart Advisor

    2 Short-Term and 2 Longer-Term Trade Ideas

    Two shorter-term and two longer-term trade ideas to consider, based on trends and the possibility of a breakout.
  8. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  9. Chart Advisor

    ChartAdvisor for November 27 2015

    Weekly technical summary of the major U.S. indexes.
  10. Chart Advisor

    Pay Attention To These Stock Patterns Playing Out

    The stocks are all moving different types of patterns. A breakout could signal a major price move in the trending direction, or it could reverse the trend.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center