Are the Banks Ready to Bounce?
How much further do major financials like Bank of America (NYSE: BAC) and Goldman Sachs (NYSE: GS) have to fall?
Shares of Bank of America have pulled back for three days in a row, including a drop of more than 2% on Monday. Only trading in bull market territory since mid-February, BAC’s newly oversold conditions have earned the stock a ratings upgrade to a “consider buying” 8 out of 10, and a positive edge in the short-term of more than one and three-quarters of a percent.
The selling has been even more fierce in shares of Goldman Sachs. Goldman has closed lower for five days in a row, and are now trading nearer to their 200-day moving average than at any time since the stock climbed back above its 200-day in February.
Goldman Sachs has now finished technically oversold for the past two consecutive trading days, earning a positive edge of just over 1% in the short-term and sharing a “consider buying” 8 out of 10 rating with Bank of America.
Traders looking to avoid single stock risk while still taking advantage of weakness in the sector may want to keep an eye on exchange-traded funds like the Financial Select Sector SPDRS ETF (NYSE: XLF). XLF has finished twice in short-term oversold territory after closing lower for four days in a row. XLF has a positive edge of almost one and a half percent, and “consider buying” rating of 9 out of 10.
Other ETFs worth considering include a pair of leveraged options: the ProShares Ultra Financials ETF (NYSE: UYG). UYG, like XLF, has a positive edge of just over 1% and 9 out of 10 ratings ahead of trading on Tuesday. And taking leverage one step further from 2x to 3x is the Direxion Financial Bull 3x Shares ETF (NYSE: FAS). Shares of FAS pulled back by two and a half percent on Monday, earning a sizable, short-term edge of more than 6%.
As always, when trading leveraged ETFs, remember to reduce your position sizes accordingly in order to avoid unwanted overexposure to a given market.
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David Penn is Editor in Chief of TradingMarkets.com