Insights: Bullish Bank Stocks
Banks: Breaking out from base patterns -- buy• Bank stocks are breaking out this week from base patterns, and are among one of the timeliest Groups. The size of these patterns—about 9 months in duration, and visible in the KBE and KRE ETFs —support further upside. Increase exposure.
• Given the large, two-day rally, is it too late to add exposure? No. Base patterns aside—which are the strongest arguments for the trade—the KBE ETF, which was flat through Sept., is up a mere 10% YTD through yesterday's close. The S&P 500's return, at 19%, is nearly double. So is the Financial Sector's, XLF, also at +19%. There's catch-up potential here.
• A couple of other tailwinds are at play here. First, reversion-to-the-mean forces are underway in the growth-value relationship, with tech/growth/momentum beginning to correct, while “shunned†segments like banks, energy, and retail inflect higher. (A sidebar: it's a positive sign for the market that selling in tech, this year's leading sector, is not cascading into other sectors; instead, other sectors are benefitting, keeping the market's bullish structure intact.) Second, though the yield curve has been flattening for most of the year, banks never broke down; instead, they consolidated sideways. We view this as a sign of latent strength.
• In the remainder of this report we highlight actionable bank charts. (This is not an all-encompassing list.)
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Bank of America is a bank and a financial holding company. Through its subsidiaries, the company provides a range of banking, investing, asset management and other financial and risk management products and services. The company's segments include: Consumer Banking, which provides credit, banking and investment products and services; Global Wealth & Investment Management, which provides investment management, brokerage, banking and retirement products; Global Banking, which provides lending-related products and services, integrated working capital management and treasury solutions, and underwriting and advisory services; and Global Markets, which provides sales and trading services and research services.
Vermilion Research delivers timely, actionable, and unique research inputs to professional investors. Our research strategists highlight securities which we believe are at major inflection points, based on our various proprietary technical indicators, and offer asymmetric risk/return profiles. We believe our research methodology, which is not limited by industry sector or market capitalization, enables us to deliver superior investment recommendations.
Our process begins by organizing all actively traded stocks into coherent sectors, then into logical industry groups. We then apply our proprietary relative strength tools to identify developing price trends. Once attractive trends are identified within a selected sectors or groups, we screen for individual stocks which we believe offer the best risk/reward profile. Vermilion offers U.S. and global equity market research products. Vermilion’s research team, which has received numerous awards and accolades, has a combined 70 year of experience in the analysis of investment securities.
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