« Financials Attempting to Breakout After 3-mo. Consolidation »

The financial sector has, by and large, consolidated for the past 3 months or so. Over the past week or two, several stocks from the sector have started to show a willingness to make a push through resistance. In many cases, the bollinger bands have started to expand sharply and that is a sign that volatility is going to increase and a new trend should soon take foot. Whether such a trending move is to the upside or the downside remains to be seen.

Our research over the weekend has left us with a handful of decent setups from the sector. We're not quite ready to add them to the Long Stock Picks list, at the moment (for two reasons: the fact that there is already a good collection of winning picks on the list and we'd rather concentrate on managing that group, and the fact that there is a 50-50 chance that any upside breakout in the sector could prove to be a false one), but we'd like to share them here on our stock blog.

Financial stock ALL (Allstate Corp.) showing expanding bollinger bands, rising momentum, and making an attempt to break intermediate resistance at 27.40. Any such (sustained) break would leave a bull rectangle on the charts; the pattern calls for a move to 31.80+ within the next month or two.

Financial stock BAC (Bank of America Corp.) broke minor resistance at 13.80, two days ago and is now challenging intermediate resistance at 15.00. Based on the height of the recent consolidation, if resistance is broken and the stock can stay above that level, a minimum of a 4.5-pt move - to 19.50 - is to be expected.

Financial stock C (Citigroup, Inc.), unlike the two seen earlier, is closer to support than resistance. Yet, the stock might provide as good, if not much better, an opportunity as the rest. The momentum indicators are showing overbought readings on the momentum indicators, as the other are, for one thing... In fact, RSI has just made a positive centerline crossover and MACD is about to follow suit. The bollinger bands are starting to expand, at the moment, and there has been a lot of interest in the stock. So, if minor resistance at 3.20 can be taken out, a move towards intermediate resistance at 4.40 should be on the cards, but if all goes well that may only be the beginning.

Financial sector exchange traded fund XLF (Financials Select Sector SPDR) broke minor resistance at 12.70 two days ago. The ETF is now knocking on intermediate resistance at 13.08. The upper bollinger band is starting to rise nicely and is paving the way for higher prices. So, if the bulls can take out resistance at 13.08 (and prices stay above that level), a 2-pt move should come very easily (based on height of recent consolidation), but if the markets continue to stay strong a move of 5 points or greater could be on the cards, over the remainder of the year.

Financial stock PRU (Prudential Financial, Inc.) is showing a rising minor trend. The stock is set to challenge intermediate resistance at 46.00. The upper bollinger band is rising strongly and is paving a path for higher prices. If resistance can be broken (and prices can be sustained above that level), a 13-pt move could be seen over the coming months.

Traders should note that all of the charts above, except for C, are showing overbought readings (or close to) on RSI. This is one of the reasons that we have decided to hold off on adding them to our trading picks lists, as well. If the current rally is a move on the intermediate trend (and not just a minor trend move). the overbought conditions on the daily charts should not be an issue, because RSI can stay in overbought territory for a long time during extended bull moves, and so all will depend on whether this is a short-term move or not. In addition to usual due diligence, traders will want to keep these facts in mind when making trading decisions on these setups.

Have a good trading week!