BALTIMORE (Stockpickr) -- Yesterday was an ugly one for stock market investors. All told, the big S&P 500 index lost 2.08%, making Monday the worst single-day performance since last October. And we've all got Greece to thank for it.
The stalemate with Greece on its ability to make a key debt payment today, and the possibility that the country could get kicked out of the eurozone, has been spilling over to U.S. markets all month long -- but the financial sector has undoubtedly taken it the worst. Yesterday, for instance, financial sector stocks shed an average of 2.64%, making it a standout performer for all the wrong reasons.
Thing is, while the financial sector is getting gut-punched by the Greek headlines, some of the individual stocks in the sector are showing some big trading opportunities to take advantage of this week. Today, we're turning to the charts for a technical look at four financial trades to beat the Greek selloff -- and one to sell now.
In case you're unfamiliar with technical analysis, here's the executive summary: technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Without further ado, let's take a look at five technical setups worth trading now.
Up first on our list of financial trades is financial market operator Intercontinental Exchange (ICE). At first glance, Intercontinental Exchange hasn't done much in 2015, moving all of 1% higher since the calendar flipped to January. But zoom out on the stock chart and things suddenly start to look a whole lot more constructive. Shares could be gearing up for a breakout this summer.
Intercontinental Exchange is currently forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance at $240 and uptrending support to the downside. Basically, as shares bounce in between those two technically-significant price levels, this stock has been getting squeezed closer and closer to a breakout above our $240 price ceiling. When that happens, we've got our buy signal.
Relative Strength, (not to be confused with RSI) adds some extra confidence to the upside in Intercontinental Exchange right now. That's because relative strength has been in an uptrend of its own since last fall, which confirms that this stock isn't just moving higher -- it's also outperforming the rest of the market long-term. As long as that relative strength uptrend remains intact, expect Intercontinental Exchange to keep on beating the rest of the market too.
UBS Group AG
Proximity to the Eurozone isn't posing too much of a problem for shares of Swiss banking stock UBS Group AG (UBS). Since the start of 2015, this $81 billion financial stock has rallied more than 24%, stomping the S&P 500's weak price action by comparison. But don't worry if you've missed the move in UBS; this stock looks ready to make a second leg higher…
The sideways price action in UBS is a rectangle pattern. It gets its name because the pattern basically "boxes in" shares between horizontal support and resistance lines. For UBS, the levels to watch are resistance up at $22 and support at $21. Rectangles are "if/then patterns" -- put a different way, if UBS breaks out through resistance at $22, then traders have a buy signal. Otherwise, if this stock violates support at $21, then the high-probability trade is a sell.
Because UBS' prior trend was up, it favors breaking out above $22. Still, it's important to be reactionary and wait for UBS shares to exit the rectangle before you take sides on this trade -- technical analysis is a risk management tool, not a crystal ball, and this doesn't become a high-probability buy until our price ceiling gets taken out…
Axis Capital Holdings
You don't need to be an expert technical trader to figure out what's been going on in shares of $5.4 billion reinsurance firm Axis Capital Holdings (AXS) since last fall -- a quick glance at this chart should tell you just about everything you need to know. Axis has been a "buy the dips stock" for the last eight months now, and as shares touch trendline support for the sixth time now, it makes sense to buy the next sign of strength in Axis.
The price action has been pretty one-sided in shares of Axis lately. Since topping out at a high near $57 in the middle of June, shares have corrected hard, settling down around $53 at yesterday's close. But that most recent correction is still within the context of a pretty textbook uptrending channel -- every touch of the bottom of that channel has provided a very attractive buying opportunity since October. Now, it's a matter of buying the next bounce in Axis…
Waiting for that bounce is important for two key reasons: it's the spot where shares have the most room to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before the channel breaks, and you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for this bounce to happen first, you're ensuring Axis can actually still catch a bid along that line before you put your money on shares.
Credit Acceptance Corp.
Automotive financing services provider Credit Acceptance Corp. (CACC) is another stock that's been moving up, up, and away since the calendar flipped to 2015. This mid-cap financial stock is up more than 73% over that stretch, stomping this breakeven stock market by comparison. And while the Greek debt crisis continues to drag on most financial sector stocks, Credit Acceptance Corp.'s price leadership should pay off for investors.
Since May, shares of Credit Acceptance Corp. have been moving sideways, but as it turns out, that sideways grind is exactly what makes this stock look tradable this summer…
In the short-term, Credit Acceptance Corp. is currently forming an inverse head and shoulders pattern. You can spot the inverse head and shoulders by looking for two swing lows that bottom out around the same level (the shoulders), separated by a bigger trough called the head; the buy signal comes on the breakout above the pattern's "neckline" level. For Credit Acceptance Corp., that's up at $240. While this pattern isn't textbook (the inverse head and shoulders normally shows up at the bottom of a downtrend, not the top of an uptrend), it's certainly tradable.
National Bank of Greece
Finally, onto our one sell from the sector…
It's hard to talk about financial sector stocks impacted by the Greek debt crisis without mentioning National Bank of Greece (NBG). This stock has managed to consistently rank as one of the highest-volume names on the NYSE since the beginning of the year, and it's been a tempting target for speculators trying to catch a bottom in the Greek fiasco.
Don't be one of them…
Long-term, NBG has been forming a descending triangle pattern, which is the bearish opposite of the bullish price pattern we looked at early with shares of Intercontinental Exchange. For NBG, the big price level to watch has been $1, and shares are finally testing a big breakdown through that level this week. Put simply, if National Bank of Greece confirms that it's violating $1 support in today's session, then a whole lot of additional downside risk opens up.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in the names mentioned.
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory that returned 15% in 2008. He has been featured in Forbes, Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.
Follow Jonas on Twitter @JonasElmerraji