Editors' pick: Originally published Nov. 15.
The global financial sector is on fire this fall.
With the black clouds of the U.S. presidential election finally cleared, investors are betting that a Trump presidency will come with the one-two punch of lowered financial regulation and pressure on the Federal Reserve to hike interest rates, two big drivers that could spell bigger profits for financial sector stocks. But you don't even have to be aware of those catalysts to realize that something big has been going on here: in the four trading sessions since the vote results hit, the Financial Select SPDR ETF (XLF) has rallied 10.7%.
Just to put that in a little perspective, almost 75% of XLF's price performance in 2016 has come in those last four trading days...
And right now, the challenge for investors looking to take advantage of that huge momentum surge in the financial sector isn't necessarily finding stocks that are pointing higher - most are. The challenge is finding financial sector trades that haven't already become super extended.
So, to tamp back risk while taking advantage of big-cap breakouts in the financial sector, we're turning to the charts for a technical look at four big financial sector breakouts to buy after the election - and one to sell.
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, here's a rundown of five technical setups that are showing solid upside potential right now...
HSBC Holdings plc
Up first on our list of financial sector breakout trades is $156 billion global bank HSBC Holdings plc (HSBC) . Don't get fooled by the headline numbers in HSBC this year - shares may be hovering around breakeven year-to-date, but they're up more than 35% from their April lows. And after tracking sideways for the last couple of months, HSBC is back in breakout mode this week.
HSBC has been forming an ascending triangle pattern since back at the end of August. The price setup is formed by a horizontal resistance level up above shares at $38.50, and uptrending support to the downside. Basically, as HSBC bounces in between those two technically significant price levels, it's been getting squeezed closer and closer to that aforementioned $38.50 price ceiling. The breakout finally happened just a few sessions ago - but there's still time to pull the trigger on the buy signal if you haven't already.
Relative strength, the indicator down at the bottom of HSBC's price chart, is the additional piece of evidence for the breakout that investors should be paying attention to here. Our relative strength line, with measures this stock's outperformance versus the rest of the broad market, has been in a well-defined uptrend since July - as long as that uptrend in relative strength remains intact, HSBC is statistically more likely than not to keep on outperforming.