We saw a promising show of strength last Friday on the part of Bank of America (BAC) and other financial stocks held by the SPDR S&P Bank ETF (KBE).
The U.S. October non-farm payrolls (NFP) came in much stronger than expected, with 204,000 jobs created against expectations of 120,000. On top of that, September’s NFP number was revised higher to 163,000 from 148,000, all of which resulted in a first reaction lower in stocks, followed by quick buying and a green close on the day. More significantly, however, was the strength in BAC and financial stocks.
While the U.S. stock market continues to look solid on the charts, we would need broad-based participation from financial stocks to get another market push higher into year’s end.
Looking at the KBE ETF, note that Friday’s rally fully reversed the selloff from Thursday, resulting in a bullish outside day candle on the daily chart. Momentum is now again on the side of the financial stocks, with various oscillator indicators also signaling for more upside room — all of which could ring in new year-to-date highs for financials in coming weeks.
On the weekly chart looking back to the early 2007 highs, the KBE is right now trading between the 38.2% and 50% Fibonacci retracement of the entire selloff from the 2007 highs down to the early 2009 lows. Through this lens, a push up toward the 50% retracement around the $34.50-$35 area looks reasonable.
On the daily chart below, last Friday’s rally in the KBE has brought it within inches of its previous year-to-date highs in early August and pushed it above a near-term resistance area. This should allow for enough upside momentum to move to fresh 2013 highs sooner rather than later.
On the single-stock front, KBE component Bank of America also pushed nicely higher Friday as BAC stock cleared its 50- and 100-day simple moving averages both in one day.
With many momentum oscillators now also coming out of oversold readings after the selling pressure over the past two weeks, BAC looks to be in good shape to move toward a breakout in coming weeks, if not days.
Learn more about the strategies Serge Berger uses to create profits in the market every day. Download his trading plan in the “Essence of Swing Trading” eBook by clicking here. At the time of publication, Berger had no positions in the securities mentioned.