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Financial Stocks Must Be Watched Closely

|Includes: BAC, C, JPMorgan Chase & Co. (JPM), WFC, XLF

Everyone in the financial media is raving over the higher interest rates in the bond market. Most talking heads on the cable news channels are talking about how the steeper yield curve is beneficial for the large bank stocks. There is a case that the large bank stocks can charge higher interest on their loans and make more money. Do banks make many loans these days. It seems that the large banks are still very content hoarding cash as they continue to borrow money from the Federal Reserve at zero percent. It has been this way since December 2008, so when you think about it, the large banks should have done well for the past three years.

J.P. Morgan Chase & Co (NYSE:JPM) is considered the strongest and the best bank stock in the United States. This stock is basically the most important stock that any trader can follow. Recently, this stock broke out of a short four week base when the stock was trading around $38.00 a share. This afternoon, JPM stock is trading higher by $0.45 cents to $45.02 a share. The stock is now trading into overbought territory on the daily chart. Traders should not rule out further upside in the near term for JPM stock as overbought conditions can continue for a while, however, anytime a stock gets this overbought it is usually moving higher on borrowed time.

Other financial stocks that are now short term overbought include Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), and Wells Fargo & Co (NYSE:WFC). Traders should watch for high volume reversal days as a sign that these stocks are likely to correct or stage a significant pullback.

Nicholas Santiago