The financial sector (NYSEARCA:IYF) remains in the five month trading range. After the initial burst off the March 2009 lows the sector has languished mostly due to the news surrounding the sector. You can’t listen to a news report or speech from a politician where the sector isn’t bashed in some way. I am not saying they don’t deserve it, but the constant battering takes its toll on investor psyche towards the sector.
Some of the sub-sectors are finally starting to show signs of life again. The insurance sector (NYSEARCA:KIE), which we highlighted several weeks ago, has broken above the January high and remains in a nice uptrend short term. Regional banks (NYSEARCA:KRE) are back near their January high as well and are poised to break higher on some momentum. That brings me to the brokers (NYSEARCA:IAI) which have struggled of late to find any upside momentum. The data surrounding the sector has focused on the negative along with potential regulatory concerns from Washington impacting earnings. All legitimate concerns for the stocks. All that said, they have made a technical breakout short term.
As you can see on the chart below the data shows a solid break higher from the consolidation pattern above the $27 level. On Thursday we cleared the 50 day moving average and cleared the way to a potential move higher. Goldman Sachs (NYSE:GS) broke from a similar pattern above the $160 level. JP Morgan (NYSE:JPM) and Morgan Stanley (NYSE:MS) both broke from their respective patterns last week. All indications are positive for a move to the at least the January high.
As with any investment you have to measure the risk/reward relationship relative to your goals and risk tolerance. Define a strategy to capture the potential move higher or lower. Part of that strategy must define a disciplined entry point ($27.35), a goal/target ($30.75) and risk management/stop ($26.55) for example. Risk management is a priority in money management from my view. Watch to see how this opportunity pans out short term.
Disclosure: Look to enter with confirmed break out