From the Desk of Alfonso Depablos @AlfCharts
As equity markets continue to repair the damage from April’s correction, we continue to find more and more stocks — and groups of stocks — that we want to be buying.
A growing number of those groups are coming from the financial sector.
Financials have made a comeback in the last week as a handful of financial indexes and individual issues are reclaiming their prior-cycle highs.
The relative trends are improving as well, with the large cap sector SPDR $XLF hitting new 52-week highs versus the S&P 500 recently.
When we think about the strongest stocks within financials, asset management and capital market stocks are top of mind.
In today’s post, we will dive in and outline some of our favorite charts in the space.
Before we do that, here’s the SPDR S&P Capital Markets ETF $KCE pressing against its former highs from 2021:
If and when KCE breaks through this resistance, we expect a strong reaction leg higher. We think it happens any day now.
If we’re above 110, the bias is higher for the whole group.
While we can always express a bullish thesis at the index or sector level via ETFs like KCE, the real alpha is generated by owning the best stocks in the peer group.
Here’s our capital market and asset management scan, sorted by percentage from the prior-cycle highs:
Click on the chart to enlarge the view.
The reason we sorted this way is because we know these stocks are leaders if they are above their 2021 bull market highs.
Here are some of our favorite charts in the space…
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First up, we have a $12.3B institutional & retail broker, Interactive Brokers $IBKR:
Interactive Brokers is printing fresh all-time highs after completing a massive six-year basing pattern.
We want to own IBKR above 109.50, targeting 156.40 over the coming 3-6 months.
Our second setup is the $9.3B investment bank, Jefferies Financial Group $JEF:
Jefferies Financial Group recently looked like a failed-breakout after making a new all-time high. The bulls quickly stepped in and repaired the damage.
As long as we’re above 42.50 we like it long with a target of 53.50 over the next 2-4 months.
It is not uncommon to see sloppy starts out of multi-year ranges like this one. You’ll notice this is the case with just about all of the names outlined below.
In fact, it was even the case with IBKR, our first setup above. This sector leader took about a year to make a clean and decisive resolution from its range following several retests and overshoots of support.
Our next setup is the $26.6B investment manager, Raymond James Financial $RJF:
After several false starts, Raymond James Financial is digging in just below the breakout level and looks poised for new all-time highs.
We want to own RJF above 126, targeting 153 over the coming 2-4 months.
Our fifth setup is the $3.4B investment bank, Piper Sandler $PIPR:
Piper Sandler is in the process of repairing a potential failed breakout after printing a fresh all-time high.
We want to own PIPR above 194, targeting 250 over the coming 3-6 months.
Next, we have the $21.7B institutional & retail broker, Tradeweb Markets $TW:
Tradeweb Markets is in the process of completing a multi-year basing pattern.
The stock is building up energy for its next leg higher in a tight coil right at the breakout level.
We want to buy TW on strength above 102.50, targeting 133.75 over the coming 3-6 months.
Our next setup is the $3B financial lender, Hercules Capital $HTGC:
Hercules Capital recently completed a continuation pattern below the former all-time highs and it appears ready to make a fresh leg higher.
We want to buy HTGC on strength above 19, with a target of 24 over the coming 3-6 months.
Next, we have the $4.6B investment manager, Hamilton Lane $HLNE:
Hamilton Lane is completing a multi-year basing pattern and is consolidating below its former all-time highs.
We want to buy HLNE on strength above 116, targeting 153 over the coming 3-6 months.
Our ninth setup is the $19.9B financial advisor company, LPL Financial $LPLA:
LPL Financial is in the process of completing a multi-year basing pattern and is forming a continuation pattern below its former all-time highs.
We want to buy LPLA on strength above 272, with a target of 329.50 over the coming 3-6 months.
Here’s the $4.2B asset manager, Main Street Capital $MAIN:
Main Street Capital is printing fresh all-time highs after putting the finishing touches on a multi-year basing pattern.
We want to own MAIN above 45, with a target of 64 over the coming 3-6 months.
Here’s $8.9B investment banking company, Houlihan Lokey $HLI:
Houlihan Lokey has flipped the breakout from resistance into support and looks poised to make a new leg higher to fresh all-time highs.
We want to own HLI above 122, with a target of 151.65 over the coming 3-6 months.
Last but not least, we have the $136B financial services behemoth, Goldman Sachs $GS:
Goldman Sachs is on the verge of completing a multi-year rounding bottom pattern.
We want to buy GS on strength above 425, targeting 516 over the coming 2-4 months.
All of these names offer asymmetric risk-reward opportunities in the financial sector.
After all, if financials are going to break out, we want to be long the strongest stocks with the cleanest setups.
The capital markets and asset management groups are full of names that fit this bill right now.
Let’s be long and strong these leaders.
We hope you enjoyed this post. As always, please reach out with any questions.
Alfonso
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