The financial sector is often looked to by active traders due to the economic role that the underlying companies play in modern society. A growing economy relies on the ability of the financial sector to provide loans to businesses, mortgages to homeowners, and a variety of insurance products.
Active traders around the world often look to the U.S. financial sector because it is home to some of the most sophisticated financial companies in the world. More recently, this group is of even more interest to traders because similar bullish chart patterns, as discussed below, are appearing across the sector, which suggest that a move higher could occur over the weeks ahead.
- Price action near influential levels of support suggests that the bulls are taking control of the momentum in the financial sector.
- Breaks beyond notable resistance levels could be used by technical traders as confirmation of a move higher.
- Dotted trendlines shown on the charts will likely be used in determining the placement of buy and stop orders.
Financial Select Sector SPDR Fund (XLF)
Active traders interested in analyzing specific sectors such as U.S. financials often turn to exchange-traded funds (ETFs) such as the Financial Select Sector SPDR Fund (XLF). Fundamentally, this ETF comprises 65 holdings with a weighted average market capitalization of $195.5 billion. The fund's managers seek to provide investors with precise exposure to companies in the diversified financial services, insurance, banking, capital markets, mortgage real estate investment trust (REIT), and consumer finance industries.
Looking at the chart below, you can see that the price of the fund has recently bounced off the support of its 50-day moving average and has moved beyond the 2021 high. The break beyond the short-term level of resistance, as shown by the blue circle, suggests that the bulls are in control of the momentum and that prices could be poised for a move higher over the weeks ahead. From a risk-management perspective, stop-loss orders will likely be placed below $129.82 to protect against a sudden shift in market sentiment or fundamentals.
Berkshire Hathaway Inc. (BRK.B)
As the top holdings of the XLF ETF, Berkshire Hathaway Inc. Class B (BRK.B) will likely be the focus of many active traders over the weeks and months ahead. Looking at the chart below, you will notice that the price of the stock has found support near its 50-day and 200-day moving averages several times over the past year. The support offered by these key technical levels suggests that the bulls are in clear control of the momentum.
As confirmation of a move higher, traders will likely want to take note of the breakout from a short-term ascending triangle pattern. The move above $240 suggests that the next leg of the uptrend is just getting underway. From a risk-management perspective, stop-loss orders will likely be placed below $231.07, $220.00, or $208.94, depending on risk tolerance and investment horizon.
JPMorgan Chase & Co. (JPM)
Another top holding of the XLF ETF that will likely capture the attention of traders over the weeks ahead is JPMorgan Chase & Co. (JPM). Looking at the chart below, you will see that JPMorgan shares have recently bounced off the support of the 50-day moving average and have since broken beyond the short-term resistance of a horizontal trendline.
This pattern is currently found across the financial sector and is one that should be noted by active traders because it suggests that prices are headed higher. Stop-loss orders will likely be placed below $129.82 in case of a sudden shift in fundamentals or market sentiment.
Most of the largest financial services companies are major lenders and investors – their portfolio performance is driven by the earnings of other sectors. When the economy is healthy and businesses are expanding, part of that increased revenue returns to the banks as payment on capital. Banking profits tend to drop when the economy struggles.
The Bottom Line
Stock charts across the financial sector are showing patterns where the price has recently bounced off a major level of support and has since broken above resistance. Recent moves beyond key levels of resistance suggest that the bulls are in control of the momentum and that prices could be headed higher over the weeks and months ahead.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.