Today we’re going dumpster diving in an area plagued by weakness. In fact, next to consumer staples and industrials, this sector has the worst year-to-date performance on the Street. We’re talking financials. For a comprehensive view of the bank stock beat-down, look no further than the Financial Sector SPDR Fund (NYSEARCA:XLF).
The slide has been severe enough to take the fund beneath all major moving averages.
Bears will point to the 200-day moving average breach as a critical warning sign.
And, I suppose their caution has merit.
From a technical perspective, XLF looks its worst since early 2016.
But here’s where zooming out and taking the birds’ eye view can help.
From a weekly and monthly perspective, bank stocks remain in a longer-term uptrend. The recent weakness appears nothing more than a garden-variety pullback providing a lower-risk entry for buyers. And that has me thinking there is opportunity amid the rubble.
I’ve scoured the sector and found a trio of beaten-down bank stocks that could be ready for a recovery.
3 Beaten-Down Bank Stocks to Buy: JPMorgan Chase (JPM)
The daily chart of JPMorgan Chase (NYSE:JPM) looks virtually identical to XLF. Since peaking in mid-February, JPM has fallen 12.8%, placing it officially in correction territory. Two weeks ago, the RSI indicator reached its most oversold levels since April 2017 which suggests we may have reached peak pessimism in the short run.
Friday’s price action has me particularly optimistic. What began as another support break quickly morphed into a failed breakdown. Many refer to this as a bear trap. Eager short-sellers that jumped on the floor breach are now getting squeezed. Consider this added demand for JPM’s next pop.
Buy the Sep $105 call for $4.60 or better.
3 Beaten-Down Bank Stocks to Buy: Bank of America Corp (BAC)
Bank of America (NYSE:BAC) shares have followed in the footstep of JPM. To provide a different spin, let’s focus on the weekly chart. Since bottoming in early 2016, BAC shares have been on a tear. The uptrend has been orderly thus far with any and all weakness bought. This year’s pullback has ushered the stock back to a potential support zone in the form of the 50-week moving average.
This is as logical an area as any for buyers to step up and defend their turf. The RSI has also descended toward the 50 level, which has proven a buyable area for the past two years.
The next earnings announcement is July 16, but I’m not too concerned with holding a position into the release. Bank stocks aren’t exactly monster movers around these things.
Buy the Oct 28 call for $1.65 or better.
3 Beaten-Down Bank Stocks to Buy: Zions Bancorp (ZION)
For our final selection, we’re moving into regional banks. Zions Bancorp (NASDAQ:ZION) boasts a longer-term uptrend and just kissed the rising 200-day moving average on Friday. With major support looming close I think this is as good an entry for a bullish trade as any.
If the 200-day gives way, horizontal support at $51 could stem the tide. Like its predecessors, the posture of the RSI indicator for ZION also supports a dip buy. Previous drops to the $30 zone have proven buying opportunities over the past few years.
Buy the Oct $52.50 call for $3.15.
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Source: Investor Place