The earnings out of the financial sector so far this season have been predominantly positive. Strong uptrends across most of the charts suggest that this is a sector that most bulls will continue to watch. In this article, we take a closer look at the charts and try to determine which companies could be best poised for a move higher over the weeks and months ahead. (For further reading, check out: Top 4 Financial Stocks for 2017.)

Financial Select Sector SPDR Fund (XLF)

One of the most common exchange-traded products (ETPs) used by retail traders for gaining exposure to the financial sector is the Financial Select Sector SPDR Fund. In case you aren't familiar, XLF comprises 67 holdings from segments such as financial services, insurance, banks, capital markets, mortgage and real estate investment trusts, and consumer finance. With a gross expense ratio of 0.14% and total net assets of $28 billion, it is one of the most heavily traded assets in the public markets.

Taking a look at the chart, you can see that the price recently surpassed the key resistance shown by the horizontal trendline​. The breakout is a technical buy sign and suggests that traders will maintain a bullish outlook until the price closes below the trendline, the 50-day or the 200-day moving averages, depending on risk tolerance. (For more on this topic, check out: What Are the Most Common ETFs That Track the Banking Sector?)

Technical chart showing the performance of the Financial Select Sector SPDR Fund (XLF)

Berkshire Hathaway Inc. (BRK.B)

With a weighting of 11.31%, Berkshire Hathaway Class B is the largest holding of XLF. While the company is a favorite among long-term value investors, it is also becoming more popular among the active trading community due to its strong uptrend and well defined breakout points.

More specifically, taking a look at the chart below, you can see that the company's stock has been trading along a well defined trendline over the past 12 months, and the recent uptake in momentum (combined with the subsequent close above the horizontal trendline) is a clear technical buy signal. Long-term traders will likely maintain a bullish outlook on the shares until the price closes below the 200-day moving average, which is currently trading at $171.02. (For more, check out: How Warren Buffett Made Berkshire Hathaway.)

Technical chart showing the performance of Berkshire Hathaway Inc. (BRK.B) stock

JPMorgan Chase & Co. (JPM)

When it comes to investing in financials, one of the strongest performers and the most well known is JPMorgan Chase. Taking a look at the chart below, you can see that the company's stock is trading within an extremely strong uptrend, and the price closing above the dotted resistance suggests that the bulls are readying to push the price even higher. Most traders will likely keep a bullish outlook on the stock until the price closes below either the 50-day or 200-day moving averages, depending on risk tolerance. (For more, check out: J.P. Morgan: Famous or Infamous.)

Technical chart showing the performance of JPMorgan Chase & Co. (JPM) stock

The Bottom Line

Strong uptrends across the financial sector suggest that this is one of the best areas to allocate capital over the next couple of months and possibly into 2018. Recent closes above major resistance levels are creating well defined trading opportunities, and most traders will likely look to protect their positions by placing stops below nearby moving averages. (For more, see: This ETF Suggests Now Is the Time to Buy Financials.)

Charts courtesy of StockCharts.com. At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.

 

 

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