The financial sector suffered a dip earlier this year along with most of the market when volatility and uncertainty seemed to dominate headlines. Over the past few years, the financial sector has proven to be one of the most resilient sectors to pullbacks, and recent price action is suggesting that the trend is about to resume its upward trajectory. In this article, we take a look at several key charts that are used by traders to track the performance of financials and try to determine how they'll position themselves over the coming weeks or months. (For more, see: 3 Charts That Suggest Financials Are Headed Higher.)
As discussed above, the financial sector suffered a sharp pullback earlier this year, which is evident on the chart of the Financial Select Sector SPDR Fund. As you can see from the chart below, the 200-day moving average predictably provided support like it did during the pullback in the Autumn of 2017. The consolidation near the long-term support level suggests that it is still a significant guide for active traders looking for where to place their buy and stop orders. Based on the recent breakout above $28, most traders will likely set their target prices near the 2018 high of $30.22. (For further reading, see: What is the Banking Sector?)
Bank of America is one of the behemoths of the financial sector, and recent price action has proven to be quite interesting from the perspective of an active trader. As you can see from the chart, a descending triangle pattern looked to be forming between March and early May. However, the recent bounce off of the 200-day moving average has pushed the price above resistance, which seems to have changed the story, and many bears are now changing their opinion about the future direction of the stock. Based on the breakout, active traders will likely be setting their target prices near the high of $33.05 and protecting their long positions by placing stop-loss orders below the 200-day moving average, which is currently trading at $28.44. (For more on this topic, see: Can Bank of America Sustain its Latest Rally?)
JPMorgan Chase is one of the world's largest financial institutions and is a favorite among active traders for determining the health of the sector. As you can see from the chart, two converging trendlines have acted as strong levels of support and resistance in recent months. The recent breakout suggests that the momentum is in the favor of the bulls, and the stock could be poised for a move back toward the 2018 high of $118.73. Technical traders will likely continue to hold a bullish outlook on the stock until the price moves below either the ascending trendline or the 200-day moving average, which is currently trading at $104.10. (For more, see: 3 Charts That Suggest Financials Are Headed Higher.)
The Bottom Line
The financial sector suffered a major pullback earlier in 2018, but based on the chart patterns of several key players, it looks as though the uptrend is ready to resume.
Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.