Traders returned from the weekend on the hunt for bank stocks. The financial sector led us into earnings season with a spate of robust reports that generated up-gaps in the big names. And we’ve since seen these heavy hitters continue to push higher.
The top gainer’s list this morning is littered with bank stocks. Usually, high beta technology stocks top the leaderboard, but not today. Or at least, not entirely. I see three good-lookers hailing from the financial sphere that have elbowed their way into the thick of things, and that makes them worth inclusion for today’s gallery.
The bull case is simple for today’s trio. The case for bank stocks, in general, is very much in favor right now. The earnings jump proves their fundamentals are supportive of higher prices. And, finally, their charts are all bullish.
Check out these three bank stocks that are blasting through resistance.
Bank of America (BAC)
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Bank of America (NYSE:BAC) is leading the charge in early trading with a 2% gain. The rally is adding to Friday’s breakout attempt that technically surpassed resistance, but lacked enough momentum to confirm the breach fully. With today’s rip, it’s official — the $30 ceiling is dead, and BAC stock is heading back to last year’s highs near $32.
Volume patterns confirm buyers’ dominance. You have to go back to mid-March to find a distribution day. Since then, selling strength has been muted.
Implied volatility is in the tank for BAC stock options making prices extremely cheap. Long premium plays are the way to go here. The stock’s cheaper price tag and lower volatility behavior (excluding today, of course) make it a better cash flow trade candidate.
Buy the Aug $28 calls for around $3.50 and sell the May $31.50 call against it for 30 cents. Together, this creates a poor boy’s covered call position.
JPMorgan Chase (JPM)
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The recent price action in JPMorgan Chase (NYSE:JPM) has mirrored that of BAC. Its earnings gap launched JPM back above the 200-day moving average and we’ve since seen strong upside followthrough.
Today’s breakout completes a high base pattern that had JPM stock digesting its recent gains. It entered this week with a clean consolidation setup making the entry over $115 resistance easy to spot. Look for JPM to soon retest last year’s high of $119.33.
JPM options are also cheap right now so let’s build a bull call spread. Buy the June $115/$120 bull call spread for $2.40. The risk is limited to $2.40 and will be lost if the stock sits below $115 at expiration. The reward is limited to $2.60 and will be captured if the stock rises above $120.
Citigroup (C)
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Citigroup (NYSE:C) is on pace for an impressive return this year. Because of the gains following its past two earnings releases, the banking giant has pieced together an impressive 36% year-to-date gain. With this month’s ramp, C stock now sits atop all major moving averages.
Although the 200-day has yet to turn higher, the 20-day and 50-day moving averages are all cruising northbound and point to higher prices.
Unlike its predecessors, however, C still has plenty of room to run before retesting last year’s high of $80.70.
Bull calls offer an attractive risk-reward play here. Buy the June $70/$75 bull call for $1.95. The risk is limited to $1.95, and the reward is limited to $3.05.
As of this writing, Tyler Craig didn’t hold a position in any of the aforementioned securities. Check out his recently released Bear Market Survival Guide to learn how to defend your portfolio against market volatility.
