Financials approach huge breakoutThe Financial Select Sector SPDR Fund (XLF) is near a breakout from a long base which favors long-term upside.
Previous rallies in early 2018 and 2020 stalled out near the pre-financial crisis peak from 2007 near $31. Now, in early 2021, we see another attempt to stage a major upside breakout, which would confirm a massive 14-year base. A move through the $31.40 area would be the signal, though I will be waiting for a break of $32 for confirmation. Banks have enjoyed a run with rising long-term rates, and net interest margins should improve as the yield curve continues to steepen.
However, a lot hinges upon whether the U.S. economic reopening and rebound can continue. January saw a surge in corporate bankruptcies; while Congress recently confirmed that there will be no stimulus in February, pushing much-needed economic assistance for individuals and small businesses out to mid-March at best. For now, I do like this group short-term - we are seeing good technical price action in stocks like JPMorgan Chase (JPM) and Bank of America (BAC). But intermediate term, it's got to prove that this rally has legs, and that could be a tall task.
If you are betting on a strong recovery, consider these financial stocks with bullish charts: Blackstone (BX), JPMorgan Chase (JPM) and Charles Schwab (SCHW).
