I’ve surveyed every sector ahead of the holiday-shortened week. Most are bullish, but one looks beautiful — the financial sector. Bank stocks, in particular, look like some of the best stocks to buy right now.
Since breaching a multi-month resistance zone and blasting to a 52-week high, the Financial Select Sector SPDR (NYSEARCA:XLF) has formed a textbook high base pattern. Three weeks of chop have allowed XLF and its holdings to digest gains and build bases to launch from for their next ascent.
This morning’s jump in the equity indexes reaffirms the favorable backdrop for stocks. Toss in the bullish seasonal winds carrying us into Thanksgiving, and I see little reason to doubt long trades here.
Let’s explore four bank stocks that are breaking out.
Bank Stocks to Buy: JPMorgan Chase (JPM)
JPMorgan Chase (NYSE:JPM) is the leader of the space and deserves the first mention. It’s the only one of today’s breakout stocks that sits at a record high. JPM’s stock price is climbing above a rising 20-day, 50-day and 200-day moving average. Volume patterns have been extremely healthy since October’s earnings report with accumulation days aplenty.
The past three weeks of basing were constructive, and this morning’s rally is on the verge of creating a breakout. With implied volatility in the tank and JPM stock being a slow-and-steady mover, I like bull call diagonal spreads.
The Trade: Buy the Jan $125 call while selling the Dec $134 call for a net debit around $6.75. If the stock pushes toward $134 and beyond Dec expiration, you will gain over $200.
Morgan Stanley (MS)
Morgan Stanley (NYSE:MS) remains well off of last year’s peak, but recently completed a bottoming pattern and pushed to a 52-week high.
The turnaround has been large enough to finally turn its 200-day moving average higher, reflecting buyers now control the long-term trend. Down days cropping up over the past month have quickly reversed, suggesting that selling pressure lacks conviction. Like JPM, the volume flows for MS stock remain bullish, leaving little reason to doubt today’s breakout attempt.
$51.50 is the next resistance zone, so consider that your upside target.
Implied volatility is at the 6th percentile of its one-year range. Couple that with the stock’s cheap price tag and bull call diagonals are even more compelling on MS than JPM.
The Trade: Buy the Jan $47 call and sell the Dec $51 call for around $3.00. If Morgan Stanley shares can rise toward $51 by Christmas, then you’re looking at around a $100 profit or a 33% return.
Wells Fargo (WFC)
Wells Fargo (NYSE:WFC) has the poorest-looking weekly chart of today’s selections. It’s primarily been in a holding pattern for five years now. But with its daily uptrend heating up, I had to include it as a candidate. WFC stock now boasts an 18.1% year-to-date gain.
Its three-week pattern mirrors Morgan Stanley’s, and this morning’s rally is creating a breakout attempt. That said, the messy weekly chart could threaten to keep gains into year-end smaller than what we might see in JPM.
Like its predecessors, Wells Fargo’s implied volatility is near its lowest levels of the year.
The Trade: Buy the Jan $50 call and sell the Dec $55.50 call for around $4.50. Your max profit is about $100 and will be captured at Dec expiration if WFC sits at or above $55.50.
Berkshire Hathaway (BRK.B)
Warren Buffett’s flagship, Berkshire Hathaway (NYSE:BRK.B), rounds out today’s quartet with a bull retracement pattern. While its peers have been treading water, BRK.B stock has been retreating slightly to create a retest of its recent breakout area. Buyers swarmed ahead of the weekend, confirming that old resistance has become new support.
As long as the stock can hold $215, I like bullish trades.
The low implied volatility theme continues with BRK.B. Its implied volatility rank is a lowly 3%. But the high price tag of the stock makes bull call diagonals an expensive proposition. Verticals are the better way to go.
The Trade: Buy the Jan $220/$225 bull call spread for around $2.13. Your potential gain is $2.87 and will be captured if the stock pushes above $225 by expiration.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. For a free trial to the best trading community on the planet and Tyler’s current home, click here!