EDITOR’S NOTE: Beat the Bell was delayed this morning due to technical issues. We apologize for the inconvenience.
Banking company CIT Group Inc. (NYSE:CIT), much like other bank stocks in recent days, has woken from a two-month sideways move and looks ripe for a next leg higher. CIT stock is giving traders and active investors a well-defined risk-reward trade setup.
Bulls should consider flashing their horns.
While the broader stock market continues to relentlessly push higher, I am seeing and hearing more and more bears capitulate and join the buying spree. As a side note, remember that it typically is not until the majority of the bears capitulate and close their losing short positions that a market can begin to “correct.”
In a related manner, it broadly speaking is a low-probability bet to fight a strong market trend such as we have witnessed in the stock market since early November 2016. It’s typically easier to trade in the direction of the broader market trend, either buying breakouts, or, after a stock gets overbought, waiting until a first level of support is reached and confirmed by a bullish reversal.
Either way, fighting a strongly trending market such as many doubters have over the past few months is an easy way to get frustrated and lose money.
Yes, ultimately any rally comes to an end, but until such time where strong bearish reversals appear and key technical support areas are violated for more than a nanosecond, the higher-probability strategy is to stay with the trend.
CIT Stock Charts
Taking this thought and applying it to the multiyear weekly chart of CIT Group, we see that the intermediate-term trend in the stock since early 2016 has been higher.
We also see that as a result of this 12-month rally, the stock has now once again reached (and possibly already marginally broken above) a key technical confluence area of resistance.
The black diagonal resistance line that stretches from the early 2014 highs currently also lines up with the 200-week simple moving average (red).
Note that the 200-week moving average used to act as support in but as of late 2015 has acted as resistance.
As such, CIT stock is now at a critical area where if it can push and hold above could lead to a fresh leg higher over time.
On the daily chart, we see that CIT stock in early February bounced off its blue and rising 100 day simple moving average, which has acted as an area of support prior.
Last Friday, the stock staged what technical analysts refer to as an “outside” day or a “bullish engulfing” day that marginally broke shares past diagonal resistance. On Tuesday, CIT stock showed some marginal follow-through buying.
Barring any major bearish reversals, CIT now looks to be eyeing a next upside target closer to the $46 area.