Shares of regional banking company Fifth Third Bancorp (NASDAQ:FITB) rallied last Friday along with other banking and financial stocks on the back of yet another rise in interest rates.
Through a technical lens, FITB stock now looks ripe to push even higher on the back of this rally, which also is supported by a breakout move in the regional banking index.
The SPDR KBW Regional Banking (ETF) (NYSEARCA:KRE) last week decisively broke out of a five-month consolidation phase to the upside. From this angle, we could see some follow-through buying in coming weeks, as the consolidation phase also took the shape of an inverse head-and-shoulders pattern, which by nature has bullish implications.
To address both sides of the story, however, I’ll also point out that the price action since February has been too steadily and orderly higher, so a sudden mean-reversion move lower can’t be ruled out just yet.
In other words, respect the breakout, but don’t operate without appropriate risk management in place.
FITB Stock Charts
If we look at the multiyear weekly chart of FITB stock, we see that a steep rally off the 2011 lows took hold, which itself came off an important higher low versus its financial crisis lows in 2009. But the rally ultimately got too steep and long, and by March 2014, Fifth Third shares had exhausted themselves.
While FITB corrected nearly 30% off those highs, Fifth Third’s price action since 2014 has mostly been consolidating the sharp multiyear rally that preceded it.
Technical analysts also would note that the price action since the 2014 top may have come in a bull flag pattern, which as the name implies has bullish implications and could ultimately lead to much higher prices.
Finally, on the daily chart we see that FITB stock had a good washout selloff in January that promptly led to a sharp V-shaped reversal higher. The January lows are thus of pivotal importance for both the near- and longer-term charts.
From February into mid-April, FITB stock again consolidated until the next rally ignited that by mid-May pushed the stock back to its late 2015 highs (black horizontal), as well as past a diagonal line of resistance (red dotted line).
Over the past couple of weeks, Fifth Third consolidated below horizontal resistance but above the previous diagonal resistance, and with Friday’s rally, shares scored another marginal break past the black horizontal.
From here, active investors could look to buy FITB stock, betting on a continuation buying trade that could lift shares toward the $22 area in coming weeks. However, respect any sharp bearish reversal move you come across.
Like what you see? Sign up for our daily Beat the Bell e-letter and get investment advice delivered to your inbox every morning!
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.
