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By: Costas Bocelli — June 3, 2021

Treasure Hunting in the Banks Sector

These really are unprecedented times. The market is playing with the all-time high it hit in May.

The government started up the printing presses and that got the banks very excited. They’ve been surging hard. If you don’t have your treasure digging shovel handy, you’re missing out.

In particular, what really stands out to me is that the financials are displaying so much relative strength in the overall market. The Financials sector tends to be a major leader for the market as a whole.

What does that mean?

If the banks are ready to loan money, then that means every type of business can employ more people, increase capital expenditures, and market their products harder.

That spells more general growth across the board.

Treasuries, currencies and cash are losing favor as the yield curve steepens. Given all this, Banks have every reason to believe that growth is on the horizon.

This is as ideal of a trading market as you’ll find. It’s time to get some money.

So I’m donning my eye patch and parrot, attaching my wooden peg leg, and hoisting the Jolly Roger. 

Just look at the surge up in the Financial (and Basic Materials) sectors over the last three months. They are outperforming the other broad sectors as well as the S&P 500—which is doing very well too (up 10.31%).

{Click any image to enlarge}

Let’s take a look at the Financial Select Sector SPDR Fund (XLF) ETF. It’s hitting all-time highs, and trending well above key moving averages such as the 50-day and the 200-day MAs. 

As an investor, you should be putting your money in the sectors that are near the top of Relative Strength rankings. The Financials sector is certainly one of those areas most deserving of your attention.

As you saw above, within the Financials, we like the Banks industry group.  This is a strong group of stocks with 95% of them trading above their respective 30-week (150 day) moving average, another key technical trend line we follow closely

Here, take a look at the Banks  %30 Week Moving Average chart when viewed on the Sector Prophets Pro platform.

With the overall strength within the Financials sector, I believe the bank stocks is the way to play it. That strength also means that any dip means better entry points and more profit potential.

Take a close look at the Banks Sector BPI chart below. This chart tracks the percentage of stocks within the sector that are trading on buy signals.  Although the current column is in O’s (supply is in control), a high number of stocks (87%)are trading on buy signals.

So I like taking advantage of weakness within the strength of the sector.

The Banks also happen to be demonstrating positive relative strength.

When viewing the Banks Sector RS Chart, it’s in a rising column of Xs and on a RS buy signal. So the Banks are outperforming the stock market on both a short-term and longer-term relative basis.

All in all, this is a sector ripe with treasure that could be a worthy addition to your portfolio holdings.

The question remains; where do we start digging? The answer is the SPDR S&P Bank ETF (KBE) ETF. 

You can see below that KBE has been using its 50 Day Moving Average (DMA) as support during its uptrend.

Now, why do I like KBE as a starting point for our treasure hunt digging campaign? Well, I really like its diversification within the banking sector.

The KBE fund holdings comprise 96 bank stocks, none of which are weighted more than 2%. So, there is little company-specific risk. It’s a straight investment into the Banks sector.

KBE has a lot of upside potential and starting our hunt here should provide a lot of perspective on how to trade banks right now. 

I have a lot of other great trades to go over with you too. It’s not just Bank ETFs, but individual bank stocks with even more upside potential. 

Earlier I mentioned that I also really like the Basic Materials sector. We’ve been talking about commodities a lot lately and that surge still isn’t over, which is why Basic Materials are strong.

There are great opportunities still in Metals Non-Ferrous, Forest Prds Paper, and Oil & Coal. (If you’re a paid reader of Sector Focus, you got that particular treasure map delivered “hot off the presses” to your inbox yesterday.)

It’s a “risk on” kind of market.

There’s treasure in them thar hills!

I look forward to continuing the hunt with you.

Costas Bocelli

Editor, True Market Insiders

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