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The financial sector popped to a new 52-week high last week. But instead of attracting big-league buyers, the rally spurred a flurry of profit-taking in bank stocks.
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It appears traders in the Financials Select Sector SPDR (NYSEARCA: XLF ) are a cautious bunch, but at least they're consistent. Though quick to ring the register, bank bulls never abandon their posts for long. Following a few down days, they always return with pockets full of cash in search of a discount.
Such are the dynamics undergirding XLF and bank stocks of late. Last week's retracement is setting up another in a long line of buy-the-dip setups in financials. XLF rests right at its rising 20-day moving average and boasts one of the better setups across all sectors heading into the week ahead.
I've taken a stroll through the components of the financial sector and discovered a few standouts. Check out these three profit-giving bank stocks that are perfect for bullish trades.
3 Bank Stocks to Buy: Morgan Stanley (MS)
First up we have Morgan Stanley (NYSE: MS ). The global financial services firm is offering one of the better uptrends in the space. It certainly has more mojo than Goldman Sachs Group Inc (NYSE: GS ), which has been dead money for months now.
MS stock sits atop rising 200-day, 50-day, and 20-day moving averages, so bulls have wrested control of all time frames. Volume patterns over the past month are favoring buyers with a spate of accumulation days. Plus, low-volume days have accompanied Morgan Stanley's current retracement, so we're not seeing any major aggression by sellers.
Implied volatility is relatively low in MS options, but I like selling puts regardless. You're still getting paid enough to make it interesting, and the worst-case scenario is you get to buy shares at a discount.
The Trade: Sell the MS Sep $44 puts for 50 cents or better.
3 Bank Stocks to Buy: Citigroup (C)
Citigroup Inc (NYSE: C ) boasts one of the better-looking charts on a weekly time frame. And its daily chart isn't too shabby either. Like its predecessor, C stock sits atop all its major moving averages. It wasn't able to rally to a higher pivot high during last week's upswing, but until support is breached, buyers remain in control.
I think the stock may just need more time to digest recent gains before breaking out of the $69 resistance zone. Accumulation days accompanied the last three upswings, confirming Citigroup is in favor of institutions right now.
Throw it all together, and this price dip is a buy. To minimize the cost, let's go with a bull put spread instead of a naked put.
The Trade: Sell the Sep $65/$60 bull put spread for 60 cents.
3 Bank Stocks to Buy: Bank of New York Mellon (BK)
Bank of New York Mellon Corp (NYSE: BK ) rounds us out with arguably the best setup of the bunch. Its trend has more momentum, its pullback was cleaner, and its risk-reward is more attractive.
Since June, BK stock has been on a tear. The series of higher pivot highs and higher pivot lows taking root is a thing of beauty. Last week's drop ended in a doji candle on Friday, suggesting a turn higher was imminent. This morning's pop seems to be confirming the reversal.
The Trade: The liquidity and strike availability of BK options leaves much to be desired. Let's go with a straight stock trade. Consider buying Bank of New York Mellon's shares outright with a stop-loss below $52.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.Want to learn how to master the art of option selling for high-probability cash flow? Check out Tyler's recently released video series through Tackle Trading on how to systematically sell iron condors for monthly income.
The post 3 Profit-Printing Bank Stocks to Buy appeared first on InvestorPlace .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
