Before everyone in the stock market became mesmerized with Apple (NASDAQ: AAPL), it the leadership of the financial stocks coming out of the downturn in the fall of 2011 that was being heralded as 2012 began. With a “worst is first” attitude, traders were amply rewarded for diving into the deep end of the risk pool that was the market for US bank stocks just a few months ago.
And now, with a handful of major bank stocks closing lower for a second day in a row, that once-upon-a-time affection for all things financial will be put to the test.
Shares of Citigroup (NYSE: C), for example, sold off by almost than one and a half percent on Monday, trading down to new, short-term lows. The stock, which has only been trading in bull market territory since mid-February, likely will trade oversold over the next few days if sellers remain on the offensive.
Citigroup has a positive edge of nearly half a percent. The stock earned a one-point ratings upgrade to 7 out of 10 midway through Monday’s session.
Already trading technically oversold, shares of Bank of America (NYSE: BAC) received a major ratings upgrade intraday, and are set to open Tuesday morning with “consider buying” ratings of 8 out of 10. The upgrade comes as the stock pulls back to its lowest closing level in more than a month, marking a return to short-term oversold territory last visited a week ago during a three-day pullback.
Wells Fargo & Company (NYSE: WFC) shares have been rangebound for almost a month and a half, ever since WF rallied to new, 52-week highs in early March. The most recent round of profit-taking in WFC has taken the stock lower for the past two days following a strong, three-day rally from short-term oversold conditions.
Heading into trading on Tuesday, shares of Wells Fargo have earned a positive edge of more than half a percent in the short-term. But even a rating upgrade late in Monday’s session only lifted the stock to a neutral, 6 out of 10. From the perspective of traders looking to buy quality pullbacks and true weakness above the 200-day moving average, WFC may need to sell-off more significantly before being able to attract buying interest in earnest. Relative to Citigroup and Bank of America, Wells Fargo is the least oversold as of Monday’s close.
Do exchange-traded funds in the financials offer any opportunities for short-term traders and active investors? Although both the Financial Select Sector SPDRS ETF (NYSE: XLF) and the iShares Dow Jones US Financial Sector Index Fund ETF (NYSE: IYF) traded lower on Monday, neither fund is yet technically oversold. This could change as quickly as the calendar does, however, with both funds trading at the lower boundary of neutral territory, and continuining to work off overbought conditions from the end of last week.
Learn quantified trading strategies to trade edges in the stock market that only the professionals are paying attention to. Click here to find out about the 1st Volatility Trading Strategy Summit with Larry Connors.
David Penn is Editor in Chief of TradingMarkets.com