Bank breakout
09/21/18

●Financial sector has led the S&P 500 so far this week

●Several bank stocks broke out of consolidations Wednesday

●Observers note longer-term fundamentals could support the industry


 

Better late than never?

It’s been an up-and-down year for bank stocks, to be sure. Late last year a slew of analysts, pundits, and market watchers were citing the industry’s bullish potential amid tax reform and a rising interest rate environment.

That all sounded fine and dandy until the end of January when a little something called a “correction” upended lots of market forecasts, at least temporarily. And as it turned out, banks stocks, and financials in general, languished longer than many areas of the market, and several of the big names are still trading well below their early 2018 highs.

The sector appears to have gained some traction, though. Commercial banks have been the strongest industry in the market-leading S&P 500 financial sector so far this week, with things really heating up two days ago. The following chart of US Bancorp (USB), for example, shows the stock broke out of a month-long trading range with a 1.42% rally on Wednesday, and tacked on another solid gain yesterday. (Several other bank stocks made similar moves.)

US Bancorp (USB), 6/21/18–9/20/18. US Bancorp (USB) price chart. Banking mo’

Source: OptionsHouse


But the chart also shows this week’s eye-catching move isn’t the whole story: Bullish momentum had actually been building for a while in USB, as the stock’s recent range had been preceded by a solid move off its late-June lows.

It was in June, as a matter of fact, that Goldman Sachs analysts again cited higher interest rates, as well as deregulation, as factors that could support bank stocks the remainder of this year and next.1 And several large banks, including USB, formed swing lows in July.

USB recently made some investor-friendly headlines of its own by announcing it was hiking its dividend, which follows an up-to-$3 billion share-buyback program launched on July 1.2

US Bancorp (USB), 6/21/18–9/20/18. US Bancorp (USB) price chart. Banking mo’

Source: OptionsHouse


It remains to be seen whether this week’s momentum move signals banking stocks are finally positioned to capitalize on their perceived longer-term advantages in the current market environment. Experienced traders, however, try to avoid grasping at momentum—it can be hard to catch, and markets often present second chances.

The chart above, for example, shows that after breaking out of its previous two consolidations, USB pulled back one or more times to the breakout level before eventually moving higher.

Market Mover Update: It took 144 trading days—115 more than the Nasdaq 100 (NDX)—but yesterday the Dow Jones Industrial Average (DJIA) finally topped its January 26 all-time high. One would almost think traders were smelling the goal line, as the Dow’s roughly 2% gain this week through Thursday was more than double that of its nearest index competitor, the S&P 500 (SPX), which also hit a record high yesterday.

Adobe Systems (ADBE) pulled back around 4% from after its post-earnings rally on September 14 before rebounding yesterday.

LGIH homes traded below its August support low for a second straight day yesterday amid an Existing Home Sales number that was unchanged from last month and slightly below estimates.

Today’s events: “Quadruple witching” expiration—September stock options, stock index options, stock index futures, and single-stock futures all go off the board today.

 

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1 TheStreet.com. 12 Bank Stocks Goldman Sachs Wants You to Buy Immediately. 6/4/18.

2 Zacks.com. U.S. Bancorp Delights Shareholders With 23% Dividend Hike. 9/19/18.