Bank stocks stole the show during last Friday’s rally. The Financial Select Sector SPDR Fund (NYSEARCA:XLF) soared 2% on heavy volume, making it the top performing sector for the day. Credit for the renewed interest in financials goes to President Donald Trump, who signed an executive order designed to scale back the Dodd-Frank Act.
Nothing like a whiff of deregulation to whip bank stocks into a frenzy.
The rally that seized the financial sector in the wake of Trump’s successful White House bid last November had stalled out over the past two months. So Friday’s news was the much-needed catalyst to spur the sector’s next leg higher.
Bank stocks across the board are now testing resistance, making breakouts imminent. Here are three of the top financials to watch for the week ahead, and quick trade ideas on how to capture the moves.
3 Bank Stocks to Buy: Morgan Stanley (MS)
Morgan Stanley (NYSE:MS) tops today’s list of bank stocks to buy with a beautiful breakout setup. Buyers flocked to the Wall Street bank in droves last Friday, driving MS 5% higher by day’s end. The surge carried shares to the upper end of their two-month trading range.
While the bank stock may need a day or two of churn to digest last week’s gains, the stage is set for a breakout trade. Volume patterns are also weighing in favor of bulls, with accumulation days on the rise.
Momentum indicator lovers will be happy to know the popular MACD is flashing a buy signal on MS stock’s daily chart. It’s the first buy signal since November.
My trade: Buy the Apr $44 call for $2.58 or better.
3 Bank Stocks to Buy: Goldman Sachs (GS)
Last Friday’s rally couldn’t have come at a better time for Goldman Sachs Group Inc (NYSE:GS). Unlike Morgan Stanley, the consolidation in GS stock was starting to break support levels. The selling pressure carried shares below the 50-day moving average for the first time since September 2015.
And then Friday happened.
In one fell swoop, GS was able to reclaim the high ground. The high-volume rise carried the bank stock back above all major moving averages, reversing its short-term downtrend in the process. And while the MACD indicator hasn’t fully completed a buy signal, it’s extremely close.
Bottom line: if you were waiting for signs that the GS slide was over, wait no longer.
My trade: Since GS stock options are rather expensive, let’s go with a bull call spread trade. Buy the Apr $240/$250 call spread for $4.75 or better.
3 Bank Stocks to Buy: Bank of America (BAC)
Bank of America Corp (NYSE:BAC) rounds out today’s selections with a setup similar to Morgan Stanley.
BAC stock has settled into a two-month range, and with Friday’s pop, it is now testing resistance. Its 200-day, 50-day, and 20-day moving averages are stacked atop each other in bullish fashion.
On the volume front, distribution days have dried up while accumulation days are making a comeback. Mix in a MACD on the verge of a buy signal, and we have a trade-worthy breakout in the making here.
My trade: If BAC stock can take out the $23.50 level, buy the Apr $23 calls for around $1.30.
As of this writing, Tyler Craig held bullish positions on XLF and MS.