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Tickers in this Article: BAC, XLF, ZION, KEY, STI
The bank stocks were in danger of breaking down as recently as a month ago, but after holding support levels, many stocks in this group have now bounced back to the top of their respective trading ranges. Although stocks like Bank of America Corporation (NYSE:BAC) continue to show weakness, the Financial Select Sector SPDR (NYSE:XLF) ETF shows that as a whole, this group held critical support near $13.25 and is now back toward the top of its five-month trading range. IN PICTURES: 9 Simple Investing Ratios You Need To Know

XLF is now testing some stiff resistance levels near $15, which has marked the top of it trading range. This also happens to coincide with the approximate value for XLF's 200-day moving average. Looking more recently, XLF has been trading in a very tight range between $15 and $14.25. If XLF can clear this area it will likely signify a broad-based move in the financials. If XLF breaks under this level, it may be a signal that further consolidation is in order.

Source: StockCharts.com


KeyCorp Common Stock (NYSE:KEY) is an individual stock that is almost mirroring the chart for XLF. KEY has been trading sideways since May, tagging the top and bottom of its range several times. The vast majority of the time it has been trading between $7.25 and $8.50, with the exception of a failed breakout attempt in late July. Much like XLF, KEY has narrowed in range recently and set a higher low in September. This low should be watched for support on any weakness, as a break below this area could lead to a retest of $7.25 and possibly a failure there. The level to watch for an upside breakout is $8.50. (For more, see The Anatomy Of Trading Breakouts.)

Source: StockCharts.com


Zions Bancorporation (NasdaqGS:ZION) is another bank stock trading in a tight range over the past few weeks. After trending lower for the past few months, ZION has finally started to stabilize. While ZION has yet to set a higher high, if it can clear the tight range between $20-$22, it could lead to a quick move higher. The $20 level is the area to watch for a possible move lower.

Source: StockCharts.com


SunTrust Banks (NYSE:STI) is a bank stock that is starting to clear its range ahead of its peers. STI was trading in a lateral range much like XLF, as it swung between $22 and $27. It cleared this range in early October, and is now retesting this level for support. If STI holds near this area, this could mean a continuation move higher, particularly if XLF remains strong.

Source: StockCharts.com


Bottom Line
The financials and bank stocks in particular have been underperforming for several months. While the markets have cleared resistance, this group remains mired in a consolidation. However, just like we needed to watch for a potential breakdown a month ago, traders should be vigilant and watch for a possible breakout. If this group could gain any kind of momentum, it could provide the fuel this market needs to distance itself from its recent breakout levels. While this is far from certain, the potential of this move makes this a situation worth monitoring. (For more, see The Evolution Of Banking.)

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

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