Friday’s job numbers propelled bond yields higher. And nobody likes that better than the financial sector and bank stocks, including today’s topic, Goldman Sachs Group Inc (NYSE:GS).
The optimism carried the Financial Select Sector SPDR Fund (NYSEARCA:XLF) to a new record closing high of $25.39. The milestone provides a perfect excuse to take a fresh look at bank stocks. Turns out GS stock — one of the most prestigious of the bunch — is itching for a breakout, making it one of my top picks for the week ahead.
To set the stage, let’s first survey XLF.
The Financial Sector
The price trend for financials has been firing on all cylinders since June, both on an absolute and a relative basis. The past four upswings have transpired on above-average volume suggesting big buyers are entering the fray. Like all rock star uptrends, XLF has been climbing above rising 20-day, 50-day, and 200-day moving averages.
Although Friday’s early-morning pop faded by day’s end, the fund still was able to close above its late-February high.
It’s not a rousing breakout, mind you, but it is a breakout.
Financials began outperforming the S&P 500 in June and haven’t looked back since. Performance chasers are always on the lookout for relative strength as it’s a hallmark of leading stocks. Take note of the uptrending Comparative Relative Strength (CRS) indicator in the accompanying chart.
Finally, at the risk of being redundant, I’ve added the Relative Strength Index (RSI) indicator as well. This pup has been trading above 50 since June, which confirms the trend of XLF is firmly in bullish territory.
Here’s the bottom line. It’s game on for bull trades in the financial sector.
Goldman Sachs’ Chart
With the recent strength in banks, you would think GS stock would be basking in the profits. But it hasn’t. It has been dead money for the past five months. Year-to-date, Goldman is actually down 6.5%. What a dud!
And it’s not like other investment banks aren’t getting in on the action. Morgan Stanley (NYSE:MS) just tagged a new nine-year high on Friday.