The financial sector has held up relatively well in 2019 compared to other sectors of the U.S. financials markets. As many are well aware, prices of key assets across the sector have been trading within a defined range, which has made it a favorite sector for trend traders. Due to recent moves above key levels of resistance, as we’ll discuss below, the sector is now gaining the attention of momentum traders. Specifically, recent breakouts are suggesting that prices could be headed significantly higher from here and that this momentum could likely carry into 2020.
Financial Select Sector SPDR Fund (XLF)
Active traders who are seeking to gauge the direction of a broad market segment like financials often turn to niche exchange-traded products such as the Financial Select Sector SPDR Fund (XLF). As you'll notice in the chart below, a well-defined ascending triangle pattern has been forming on the chart since late summer. The pattern is often found during periods of consolidation, and a move above resistance is often used to mark the beginning of the next leg higher. Based on the pattern, followers of technical analysis will likely set their stop-loss orders below the horizontal trendline or the 200-day moving average, depending on their risk tolerance and investment horizon.
Citigroup Inc. (C)
One of the top holdings of the XLF ETF is Citigroup Inc. (C), which recently moved above the resistance of the psychological $70 mark. As you can see from the chart below, the horizontal trendline has acted as a strong guide for determining the placement of sell orders over most of 2019. The recent bounce off of the long-term support of the 200-day moving average and subsequent breakout suggest that the bulls are in control of the momentum. Target prices will most likely be placed near $80, which is equal to the entry price plus the height of the pattern. Stop-loss orders will most likely be placed below $70 or $65.96, depending on risk tolerance.
Bank of America Corporation (BAC)
Trend traders have closely followed the price action of Bank of America Corporation (BAC) over the course of 2019 because it has spent much of the time trading within a well-defined channel pattern. As you'll see in the chart below, the horizontal trendlines have acted as strong guides for determining the placement of buy and stop orders. However, the recent close and subsequent retest of the upper trendline suggests that the bulls are in control of the momentum. Based on the height of the pattern, target prices will most likely be set near $36.
The Bottom Line
The financial sector has been able to withstand much of the selling pressure that has dominated the financial markets in recent months. Often regarded as a barometer of economic conditions, the recent breakouts above key trendlines shown on the charts above suggest that the group is about to head higher. Some active traders may even use these charts to suggest that the state of the economy is stronger than many currently believe to be the case.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.