The financial sector appears to be finally awaking from its deep slumber. The Financial Select Sector SPDR Fund (NYSEARCA:XLF) popped above resistance late last week in a promising breakout attempt of its multimonth range.
Should the breakout bid succeed we may finally see some upside in financial stocks, which have year-to-date lagged the rest of the market.
As shown below, the Thursday/Friday surge was accompanied by higher-than-average volume lending credibility to the move. And XLF hasn’t just turned a corner on an absolute basis — its relative performance has also reversed. The comparative relative strength indicator shows the financial sector was able to break above the down trendline that has defined the lagging sector since December.
Assuming the reversal sticks, it’s fair to say XLF has turned into a market leader.
In light of the newfound strength in financial stocks, here are three top bank stocks primed for bullish plays:
3 Financial Stocks to Buy Now: Wells Fargo & Co (WFC)
The top holding in the XLF is Wells Fargo & Co (NYSE:WFC) and she’s a beauty.
Unlike the financial sector that remains well off its 2007 peak, WFC cleared its pre-crisis high a couple years ago and hasn’t looked back since.
Since reaching a new all-time high late last year, the stock has spent the first half of 2015 digesting its large gains. If recent price action is any indication, however, it looks as if WFC is ready to begin its next advance.
Watch for a breakout over the $56 zone to confirm Wells Fargo’s new move.
Buy the Jul $55 calls to profit once the breach transpires.
3 Financial Stocks to Buy Now: Citigroup Inc (C)
Citigroup Inc (NYSE:C) is knocking on the door of resistance and a breakout looks imminent.
Its price action in recent months has been constructive, and increasing demand has delivered higher pivot lows. The stock’s upward drift has turned both the 20- and 50-day moving averages higher as well. Distribution has been largely absent as we haven’t seen any really high volume down days since early March.
The $54.25 area has provided staunch resistance to other rally attempts. Given the nascent relative strength in the financial sector, I suspect the current breakout bid in Citigroup stock has a high chance of success.
If C is able to rise above resistance, bet with the bulls by snatching up the Jul $52.50 calls
3 Financial Stocks to Buy Now: Goldman Sachs Group Inc (GS)
Rounding out our trio is Goldman Sachs Group Inc (NYSE:GS).
The investment bank has been a leader among the financial sector’s constituents. Short of the minor hiccup in January, GS has been outperforming the XLF for all of 2015. Should the expected breakout in the XLF transpire, you can bet Goldman will continue to see relative strength.
On an absolute basis the action in GS has been top notch. The trend is up, moving averages are pointing higher, and the stock has rebounded from last week’s market selloff with style.
Use any type of pullback in the coming days to grab the Jul $200 calls.
At the time of this writing Tyler Craig owned bullish option positions in GS.