Bank stocks declined in May, giving a lot of ground before dip buyers came to the rescue dangerously close to Mars and deep lows. Upwards subsequent has been spectacular, the emergence of industry funds and the big names of the vertical recovery of the waves, but those rally pulses are now approaching heavy resistance levels. In turn, these obstacles could ignite times and renewed selling pressure, providing low-risk short sale opportunities for the skilled traders and investors.
What happens then, bank stocks have resumed the negotiation of the beaches which have stretched across five years, highlighting the need for swing trading strategies that take advantage of the infinite ups and downs. Sustained escape or failure may not be in the cards this year, given the election and the pandemic of uncertainty, increasing the chances that the group will just tread water until a new administration is bold enough, or the coronavirus forces of a new recession in the economies of the world.
The SPDR S&P Bank ETF (KBE) broke out above the year 2015 of the resistance in the upper $30s after the presidential election of 2016, to reach a high level in 10 years, to $52 in March 2018. It has been tested in small groups of level with success in December and turned over in 2019, but the increase failed to reach the previous peak, showing a decrease from a high in the upper part of $40 in December 2019. It sold in 2020, and the failure of the escape during the first quarter swoon, the sub-listing of the 2016 down by more than four points before falling back in March.
The rebound in April re-established a trading range which has published the failure of a breakthrough and a failure of the ventilation. In turn, this strengthens the resistance of the range between the mid$20 to mid$30, which corresponds to the increase recorded since the funds hit a six-week low, the May 14. The 200-day exponential moving average (EMA), broken on heavy volume in February, and has now aligned with the resistance, increasing the chances of a reversal and retracement that rewards in a timely manner to short sales.
Dow component JPMorgan Chase & Co. (JPM) has outperformed the funds and most of its competitors in the last decade, breaking out to an all-time high after the election and enter a trend with the advance that has earned almost $120 in March 2018. It sold in the low $90 in December and turned over in 2019, breaking out to a new summit in October. The rally, posted a record high of $141.10 in January, leaving in its place a small topping pattern that broke down in February.
The stock failed at the’2019 breakout a few sessions later, and is entered in a vertical slide that ended within a few points of 2016 breakout in the month of March. The increase subsequent just mounted the broken 200-day EMA and reached a strong resistance generated by the failure of the escape and .618 Fibonacci sale retracement level, which were closely aligned. The balance volume (OBV), the accumulation-distribution indicator hit a 14-month low in May, while subsequent purchasing power does not match the price action, adding to the odds of a reversal and cost-effective slowdown.
Bank of America Corporation (BAC) shares broke out above eight years of resistance in the upper part of adolescence after the election, lifting a nine-year high in the low $30s in February 2008. He then carved a long series of lower highs, generating a descending trend line that has broken to the upside in October 2019. The stock rallied to the top of the 2018 high in November, but has failed the upward trend in February, and the trend line of a few sessions later, the dumping to a three-year low in the upper part of adolescence.
Holder of the share prices climbed the broken December 2018 low in April and successfully completed a test at this level in May, which gives a vertical impulse that has now reached the broken trend line and the .618 Fibonacci sale retracement level in the upper part of $20. At the same time, OBV remains stuck under the April high, even if the price is trading at a two-and-a-half-month high, highlighting the weakness of the purchasing power which could be a sign of recovery and sale to the resistance.
The Bottom Line
The banking stocks have reached a strong resistance after the vertical recovery of the wave and could reverse, providing timely short sale profits.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.