Monday’s stock market rally was led by financials — arguably the most important group of stocks, as far as helping a broad market advance goes. Large banks, small banks, brokerages … all saw their stocks head higher Monday, and in many cases, we saw some crucial breakouts.
Active traders and investors should pay special attention to financial services firm Charles Schwab Corp (NYSE:SCHW), which scored a notable breakout move.
When Charles Schwab reported its first-quarter results on April 15, it announced earnings of 22 cents per share and sales of $1.53 billion — both shy of Wall Street estimates, for 24 cents per share and $1.54 billion, respectively. Trading revenue slipped 8% but new retail brokerage accounts was up 9%.
SCHW stock, however, managed to keep its composure after the report, much like many of its peers. The overall picture for retail brokerages remains such that trading activity is low, but expectations are to see an increase in coming quarters.
Before looking at the chart of SCHW stock, let’s note that the KBW Bank Index — a broader measure for the financial stocks — broke out of a multimonth trading range Monday and could now challenge the late 2014 highs in the near future.
SCHW Stock Charts
For Charles Schwab, the bigger picture doesn’t look entirely dissimilar from the BKX chart above. Note that after topping last September, SCHW stock began basing in a wide trading range above a line of support around the $25 area on a weekly closing basis that had been intact since late 2013.
As trading ranges so often go, the stock since tested the upper and lower ends of the range several times since, and in March even staged a brief breakout fake-out move before consolidating further near the very top of the trading range. This began to coil SCHW up, and eventually led to Monday’s breakout to fresh multiyear highs on a daily closing basis.
On the daily chart, we see the tight range that SCHW stock had traded in since early March. Note the eight- and 21-day simple moving averages (blue and yellow) are tightly bound together as a result. But also note the series of bullish reversals (i.e., the capitulation of the bears) we saw over the past few months as highlighted by the yellow arrows. Those bullish reversals acted as weight against the black line of resistance above, i.e. forcing an eventual breakout move.
With Monday’s move, active investors could look to buy SCHW stock at $31.20 or higher for a next upside target near $33.
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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.
