So far in 2019, the financial sector has managed to maintain its established uptrend despite trend reversals and extreme volatility that have been common themes in other sectors. As you’ll read in the paragraphs below, trendlines have created well-defined ranges across the sector, and active traders will undoubtedly look to these levels when determining where to place their orders over the weeks and months ahead.
Financial Select Sector SPDR Fund (XLF)
For most trend traders, the overall direction of a broad market or sector is often determined by analyzing the performance of popular exchange-traded funds (ETFs) such as the Financial Select Sector SPDR Fund (XLF). As you can see from the chart below, the price of the ETF has traded within an ascending channel pattern for most of 2019, and the recent bounce off of the lower bound suggests that this story could continue for the remainder of the year. Followers of technical analysis will look to buy as close to the trendline as possible in an attempt to maximize the risk/reward. The proximity of the 200-day moving average will also likely be looked at as a level of major support, and stop-losses will likely be set below $26.48 to protect against a sudden shift in sentiment or fundamentals.
Bank of America Corporation (BAC)
One of the major players within the financial sector that will likely be watched very closely over the weeks to come is Bank of America Corporation (BAC). As you can see below, the price of the stock has traded within a channel pattern for most of this year, and the recent price action near the mid-point of the pattern suggests that the price could be poised to retest the resistance near $30.50 in the days or weeks ahead. In addition, the sideways price action that has dominated 2019 will likely be looked at by active traders as a period of consolidation, and some will likely be watching for a break beyond the pattern in early 2020 to mark the next stage of the long-term trend.
Wells Fargo & Company (WFC)
Wells Fargo & Company (WFC) shares have struggled to move higher throughout 2019, and the defined range was a clear sign of the lack of conviction on the part of the bulls. However, with that said, the recent breakout has changed the story by triggering a bullish crossover between the 50-day and 200-day moving averages (shown by the blue circle). This long-term buy sign suggests that we are in the early days of a long-term move higher and that the bulls are now in control of the momentum. From a risk management perspective, stop-loss orders will likely be set below $46.92 in case of a sudden sell-off.
The Bottom Line
The financial sector has managed to remain relatively unscathed over the past year despite major sell-offs and market volatility. Based on the charts discussed above, it appears as though the sector is well positioned to make a long-term move higher and will likely be the one to watch over the final months of 2019 and for most of 2020.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.