The broad-based Financial Select SPDR ETF (XLF) has gone basically sideways for the majority of the year, but under the surface, there has been strength in individual names and sub-sectors like broker-dealers and exchanges. We've spoken a lot about them in the past, so today I want to focus on several stocks showing relative strength that are setting up on the long side.
The first name on our list is American Express Company (AXP), which I've been pointing out for most of the year as a stock that has held up well. It has continued to consolidate above its 2014-2015 highs as it clears this massive four-year base and looks poised to make new highs as long as prices are above $95.70. If the stock does break out of this year-to-date range, our upside price objective is $124.50. (See also: American Express Stock Appears Set to Surge.)
CME Group Inc. (CME) is another name that has been consolidating for six months within the context of a very strong long-term uptrend. If prices can close above $172.50, we want to be buyers and taking profits up near $197.25.
SunTrust Banks, Inc. (STI) has exhibited a similar pattern over the past two years in which prices break above our upside price objective, consolidate for a number of months and then continue higher. It looks like we're on the verge of another breakout in this stock, so we want to be buying a move above $73.50 and taking profits at $87.75.
[In my Technical Analysis course on the Investopedia Academy, I show you how to recognize potential breakouts in a stock price and determine the appropriate trading strategy to maximize your profits.]
Northern Trust Corporation (NTRS) is a tricky name because it's in the middle of our risk management level and our upside price target, but I wanted to include it to show further evidence that, despite the sideways action of the Financial Select SPDR ETF, there are a number of names working under the surface.
The last name I want to mention is Intercontinental Exchange, Inc. (ICE), which is emerging from a seven-month base to new all-time highs. With that said, it's scheduled to release its second quarter earnings on Aug. 2, so it's best to keep this name on the radar and look to trade it after that date if it's still in play. (For more, see: Financial Stocks a Good Sector for Active Managers.)
The Bottom Line
There are strong stocks in every market segment that tend to lead if and when sector rotation puts it back into favor. As a result of short-term improvements in the broad-based Financial Select SPDR ETF's price action, we want to keep an eye on these names as a way to capitalize on the potential sector rotation we're seeing back into financials. In each case, the risk is very well defined, and the reward/risk is skewed in our favor. If we're wrong, we have our levels that will allow us to exit with minimal losses and revisit them when the sector improves further.
Thanks for reading, and let us know if you have any questions!