On Tuesday before the start of trading, banking group Comerica (CMA) reported solid second-quarter earnings that resulted in a technically significant move in the stock. Active investors can now jump on for follow-through buying in the coming days and weeks.
Banks typically report in the beginning of any earnings season — that’s why we currently find ourselves in the middle of a flurry of banking reports. So far banks as a group reported good earnings, which in recent days led to a good bump in the financial sector of the S&P 500, as well as the KBW Banking Index (BKX).
Market participants seemed to like the story from Comerica, which led to a 2.63% rally in the stock on Tuesday, as the financial sector as a whole also rallied and outperformed the rest of the market again. As I often say, it’s difficult for the broader market to rally without participation of the financial sector, just as it is difficult for the market to completely fall apart when financials are holding up. Thus, this latest bump for shares of Comerica and other banking stocks may also be at least near-term supportive for the broader market.
The multiyear weekly chart of CMA stock remains constructive. CMA stock has been moving higher in an orderly uptrending channel since late 2012 and in late 2013 overcame a multiyear lateral resistance area around $44. By March of this year the stock had exhausted itself as it reached the upper end of the channel, which led to the spring correction/mean-reversion move back toward the lower end of the trend. There the stock again began to bounce, and this bounce still has momentum and room to move into the mid- to high $50s.
On the daily chart, in May CMA stock found support right at its rising 200-day simple moving average at the bottom of the spring correction. The June and early-July consolidation period then took place above the 50- and 100-day moving averages (yellow and blue lines, respectively) — all of which ultimately led to Tuesday’s breakout rally after the earnings report.
Active investors could now consider hopping on board the stock for a follow-through buying move into the mid- to high $50s. If we measure the rally off the May lows into the early-June highs and apply this to the top of the consolidation period, then we get to a measured price target somewhere between $55 and $57. As always, any quick bearish reversal of Tuesday’s breakout rally would nullify the setup.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.