Although stocks closed out Thursday at fresh highs, they didn’t rally greatly. The most bullish thing on my screens was the strength in financials, which finally showed some signs of life.
I often discuss the importance of financial stocks’ participation in a broader market directional move, and the fact that stocks thus far in 2014 are fairly flat is at least in part because the bank and broker stocks haven’t done much.
The news flow for financials hasn’t been particularly heavy as of late, although given the big industry that it is, there is always plenty to sift through on a daily basis.
Financials: Bank of America (BAC)
On Thursday, Bank of America (BAC) disputed government claims that it should pay $2.1 billion after being found guilty of fraud over defective mortgages sold by its Countrywide unit. On the back of this, BAC stock rallied close to 1% on the day and is technically in a good position to rally further.
On the charts, BAC stock closed well off its intraday lows Wednesday and gave us a nice outside day and follow-through buying Thursday. This pushed the stock back above its 50-day moving average and possibly on its way toward and through the January downtrend resistance line.
Financials: Wells Fargo (WFC)
Wells Fargo (WFC) also gave us a first hint at possibly bullish action past resistance on Thursday when the stock closed well off its intraday lows, which touched the 50-day simple moving average (yellow line). If WFC stock can push through the $46.50 area, upside momentum should be back in fashion, and this also would help the broader market.
Although I do not want to take the below chart apart too much, one also could consider the pattern thus far in 2014 to be a so-called inverse head-and-shoulders form, which has a final upside target close to $49. This is just something to be kept in the back of our minds for the time being, but WFC stock must first clear $46.50.
Financials: Goldman Sachs (GS)
Goldman Sachs (GS) has been frustrating both the bulls and the bears for the better part of the past four weeks, as the stock has been stuck in a tight trading range around its 200-day moving average (red). Earlier in the week, GS stock tried to overcome its trading range but quickly was pushed lower again. On Wednesday, however, Goldman Sachs again managed to hold support, closing well off the day’s lows and this was followed by a nice bullish outside day Thursday.
Just like the aforementioned financials, GS stock has more to prove by needing to overcome next resistance levels, but the action over the past two days puts it in a favorable position to try to clear the $167 area and begin to move higher again.
If and when the aforementioned financials break their next resistance areas, good trades for active investors will set up in each of them.
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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 e-book by clicking here. As of this writing, he did not hold a position in any of the aforementioned securities.
