With the strong rally last Friday, banking stocks took a particular liking to the bullishness and in the case of Bank of America Corp (NYSE: BAC ) led to a breakout move worth respecting. Active investors and traders could now look to bet on a continuation of this upside momentum in BAC stock.
While the broader stock market can rally for periods at a time without sponsorship of the financial sector, at the margin the rallies feel steadier and more sustainable when banking stocks participate.
As a result I always keep a close eye on the banking stocks and one index I follow is the KBW Nasdaq Bank Index.
BAC Stock Charts
Click to Enlarge
Moving averages legend: red - 200 week, blue - 100 week, yellow - 50 week
On the first chart, I plotted BAC stock on top and the BKX index at the bottom in blue. Here we see that after a few weeks of consolidating within the middle part of the up-trending channel (black parallels), the stock last week attempted a marginal breakout of the range as marked by the blue box.
The stock had a so-called bullish outside week last week through the lens of candlestick analysis, which is to say that after initially trading lower, the stock rallied back to finish the week strong and above the previous week's highs. Although the stock remains below the intra-week highs from two weeks ago, the effort was notably strong in other large-cap banking institutions as well.
The blue line at the bottom of the chart represents a ratio of the BKX index versus the S&P 500 . Here we see that although no breakout occurred last week, banking stocks are still trading relatively strong versus the S&P 500, which is an encouraging sign for the group and financial stocks as a sector.
Click to Enlarge
Moving averages legend: red - 200 day, blue - 100 day, yellow - 50 day
On the daily chart, we see that last Friday's rally pushed BAC stock marginally out of the multiweek consolidation phase on a daily closing basis.
From here, without making things too complicated active traders and investors could look to buy the stock for a next upside target in the $34-$35 zone, which is close to the upper end of the trading channel outlined in the above weekly chart.
Any strong daily bearish reversal, particularly if also felt in the broader financial sector would call for a stop loss on this swing trade.
Check out Serge's Daily Market Outlook for March 12.
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