Shares of brokerage and financial services company Charles Schwab Corp (NYSE:SCHW) found higher ground Thursday on the back of an analyst upgrade, and as a result showed relative strength versus the broader market. SCHW stock also bounced off a technically crucial near-term support level, allowing active investors well-defined risk/reward for a trade.
News flow for Charles Schwab has been fairly active in March:
- March 13: SCHW reported net new assets of $6.8 billion and said that earnings for the first quarter will come in about a penny per share lower on a year-over-year basis.
- March 17: JMP Securities upgraded Schwab to an Outperform rating
- March 19: Schwab announced a co-branding relationship with American Express Company (NYSE:AXP) for two new premium credit cards, thus getting into a longer-term relationship with AmEx.
- March 26: Barclays came in with positive remarks as it upgraded SCHW stock to “overweight” and raised the price target to $34. Barclays based the upgrade on its belief that Schwab will benefit from a normalizing interest-rate environment in the United States.
Looking ahead, the next major event for Schwab is the company’s next batch of earnings on April 15.
SCHW Stock Charts
The technical picture for Schwab shares, through a multiyear lens, is decidedly constructive. It also supports my belief that any slow rise in interest rates will benefit the financial sector, and that as a result, financials could lead the next leg higher in the broader stock market.
The breakout move from early 2014, when SCHW stock broke past its 2008 highs, is noteworthy. Schwab then continued to ascend into last September, but after the breakout move, SCHW spent the majority of 2014 in a bigger-picture consolidation phase above previous resistance (black horizontal). It is thus not surprising to see a lack of upside momentum (directional acceleration) in the stock in 2014, as represented by the Relative Strength Index (RSI) at the bottom of the chart.
The next leg higher in SCHW stock should break it out of the 2014 holding pattern, and it should come on better momentum.
On the daily chart, we see that SCHW stock since last October dipped twice below its rising 200-day simple moving average (red line), which it had not done since 2012. However, it’s important to note that the stock also just as quickly rebounded back above this support line in both cases, which through a pure price action lens is constructive behavior.
In mid-March, SCHW once again failed to overcome its lateral resistance line around the $31 area, which consequently brought the stock back down to its 100-day moving average (blue line). On Thursday, the stock bounced off this line again (the second time in six trading days) and thus is a near-term level to watch.
Active investors and traders could consider buying SCHW stock on the back of the next confirmation buying day and see if it can lead to a better upside momentum move. A stop-loss at the 100-day moving average would make sense.
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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.
