The financial sector is often looked to as a barometer for how the rest of the broader market is set to perform. While most attention goes to the giants such as Citigroup Inc. (C) and Bank of America Corporation (BAC), subsectors such as asset management, regional banks, diversified financial services, thrifts and mortgages are often overlooked and tend to offer greater investment opportunity. In this article, we'll take a look at three charts suggesting that it could be an ideal time to buy into the subsectors of the financial sector and indicating that a significant uptrend could be in the cards.
SPDR S&P Bank ETF (KBE)
Active traders interested in tracking the subsectors of the financial sector mentioned above often look to exchange-traded products such as the SPDR S&P Bank ETF (KBE). As you can see below, the price has been trading below the resistance of its 200-day moving average for much of the past year. The strong move off the lows that occurred in early 2019 provided enough momentum to send the price toward the resistance, and in recent sessions, traders are keeping a close eye on KBE to see if the price is able to break above that level.
While it may still be early, Tuesday's close above $44.13 is a significant move on the basis of technical analysis and points to a move higher from here. Active traders will likely set stop-loss orders below $44.13 in case of a sudden shift in fundamentals and in order to maximize the lucrative risk-to-reward ratio. Traders will now also watch for a bullish crossover between the 50-day and 200-day moving averages because that would be a technical indication of the start of a major long-term uptrend.
Voya Financial, Inc. (VOYA)
One of the largest holdings of the KBE ETF that could garner some attention by active traders is Voya Financial, Inc. (VOYA). The close above the influential $52 mark earlier this month was a clear indication that the bulls are in control of the momentum. The breakout also triggered a golden cross between the long-term moving averages (shown by the blue arrow), which is a technical signal of a major move higher. From a risk management perspective, traders will most likely place stop-loss orders below $50.82 or $47.56 depending on risk tolerance in case of a sudden shift in underlying fundamentals.
AXA Equitable Holdings, Inc. (EQH)
Based on current the chart pattern, another top holding of KBE that could be worth a closer look is AXA Equitable Holdings, Inc. (EQH). As you can see below, the price has recently moved above its 200-day moving average, and the momentum has also brought the 50-day moving average higher as a result (shown by the blue circle). The bullish price action over the past several sessions combined with the moving average crossover suggest that active traders will be looking to enter a position as close to current levels as possible and protect against a sudden sell-off by placing stop losses below $20.11.
The Bottom Line
When it comes to investing in the financial sector, most attention floods to the major names such as Bank of America. However, based on the charts discussed above, it looks as though it's time for subsectors such as asset management, regional banks, diversified financial services, thrifts and mortgages to shine.
At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.