Don't call it a comeback, but the financial sector is picking up steam this summer, catching up to the rest of the S&P 500 after a prolonged lull. While the Financial Select Sector SPDR ETF (XLF - Get Report) is back up to 7.29% returns year-to-date, nearly all of that upside has taken place over the course of the last six weeks.
In other words, while the financial sector looks like it's merely keeping pace with the S&P this summer, the reality is that financial stocks have been building some serious momentum since May. Of course, not all big financial firms are participating equally to the upside. In fact, some are still looking top-heavy in 2017. At the same time, a handful of other major financial trades are looking ready to break higher.
The bottom line is, stock picking still matters in this market.
To figure out which big financials are about to lead the rally in July (and when you should buy them), we're turning to the charts for a technical look.
Here's a rundown of three technical setups that are showing bullish trading potential right now.
Leading things off is $217 billion payment network Visa Inc. (V - Get Report) . Visa has been a stellar performer in 2017, rallying almost 20% since the calendar flipped to January. But don't worry if you've missed out on that upside move. Shares are teetering on the verge of another breakout this summer. The key level to watch in Visa is resistance up at $96.
The pattern in play in Visa right now is an ascending triangle setup, a bullish continuation pattern that signals more upside ahead. The setup is formed by horizontal resistance up above shares (at the aforementioned $96 level), with uptrending support to the downside. Basically, as Visa bounces in between those two technically important price levels, it's been getting squeezed closer and closer to a breakout through $96. When that happens, we've got our buy signal.
Relative strength, the indicator down at the bottom of Visa's price chart, adds some extra confidence to an upside move from here. That's because Visa's relative strength line has been making higher lows of its own, an indication that the outperformance is continuing right now.
If you decide to buy the Visa breakout through $96, the 50-day moving average is a logical place to park a protective stop.
Banco Santander SA
We're seeing the exact same price setup in shares of Spanish banking giant Banco Santander SA (SAN) . While most U.S. banks are struggling from a momentum standpoint, Santander's price action has been attractive lately -- and an ascending triangle setup signals a buy above the $7 level in this $100 billion European bank.
What makes that $7 level so important for this stock? It all boils down to buyers and sellers.
The $7 resistance level is a price where there has been an excess of supply of shares; in other words, it's a spot where sellers have previously been more eager to step in and take gains rather than buyers have been to buy. That's what makes a breakout above $7 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. Wait for shares to push above that $7 price ceiling before you pull the trigger on this trade. Santander is within grabbing distance of that breakout level Thursday afternoon.
Royal Bank of Scotland Group plc
Rounding out our list of bullish financial sector trades is Royal Bank of Scotland Group plc (RBS) . The good news is that you don't need to be an expert trader to figure out what's happening on this chart. Instead, the price setup is about as basic as it gets.
RBS has been bouncing its way higher in a well-defined uptrend since last fall, rallying about 50% from its November lows. Fast-forward to this summer, and RBS is still a "buy the dips stock." In other words, every test of the bottom of Royal Bank of Scotland's trend channel has provided an optimal entry point for buyers on the way up -- and shares are bouncing off of trend line support again this month.
If you decide to pull the trigger on RBS' uptrend here, the prior swing low at $6.20 is a logical place to park a protective stop. That's because, by definition, if RBS violates that prior low, the uptrend is over.