Looking at the banking stocks? Here are a couple of ways to make money. (January 18, 2017)
DJUSBK PM DJUSBK PM GS
I want to look at the banking index ( INDEXDJX:DJUSBK ) and then specifically Goldman Sachs ( NYSE:GS ). Here we have the big Trump rally after the election. Decreased regulation, all of that, just bullishness on the banks. So this was up 25 percent or so before it peaked. Kind of a similar thing with the Dow ( INDEXDJX:.DJI ), though the Dow ( INDEXDJX:.DJI ) didn’t go up 25 percent. Anyway, so this is peaking out right at 410.00 and we are getting all of these earnings coming in from the banks, and they are not moving higher.
Now, that is not really surprising. The only folks that I have seen, at least on CNBC, that are talking about the banks potentially moving higher are people that don’t trade stocks. And I it would kind of impossible for me to care less about what people that don’t trade stocks think about stocks. This has been really extended, and you don’t really know even if it did breakout to the upside, like why would we get that? What is the catalyst? Just not a lot of stuff that is known. We see JP Morgan ( NYSE:JPM ). Doesn’t it look a lot like this ( INDEXDJX:DJUSBK ), it is in the banking index, they are all kind of the same.
So here is the deal: I wouldn’t want to be long these stocks right now. But I ABSOLUTELY would not want to short these stocks. I think, ultimately, they probably do go higher. They have been in a long, long, long, long base and they have absolutely BLOWN, for several years. You can look at the monthly chart, big nasty pullback here and then a lot of sideways consolidation, even more sideways consolidation. But do you think the trend might be up? I do. And so what we have to do is, you want to wait for a little bit more of a pullback before you buy these stocks; because it is so extended for a banking stock. This is still 20 percent above the 40-week or 200-day moving average. So for me, I would want to either buy this stock when it falls lower or when it shows it is indeed going to breakout to new highs. Personally, I would prefer a penetration of the 50-day moving average and come back and kiss 75.00.
Goldman Sachs ( NYSE:GS ) reports earnings, right? High volume sell-off yesterday, and then another sell-off today. Not a stock that you should short. I wouldn’t really be bearish on this stock. I just wouldn’t want to be bullish on it. This is a pattern that I look at all the time. Volatility squeeze, a breakout, and then a pullback, and then a move higher. That is really what we look at. Well, we are not getting number one here. We are getting a breakout to the downside. And then you look for a pullback to test the breakout level and THEN we see what happens. Could we get that kind of move? Sure, we could. But what I want to do is, I want to wait for the stock to show some signs of support and then it just gets more interesting.
After that I want to see a couple of things. First of all, I want to see the stock start to move upward, because I don’t want to be the first guy buying. I Don’t want to be the first guy out of the foxhole. I want to be right behind the guy that doesn’t fall back clutching his chest. That is the guy that I want to be. So I want to wait for this to start moving higher and THEN (and that is a good thing), and THEN I want to look around and say, “Okay, this is moving higher. Is this the best place for me to put my money?” And if it is, go. But it may not be. And if it is not, that is okay too. You don’t trade Goldman Sachs ( NYSE:GS ), you don’t buy Goldman Sachs ( NYSE:GS ), but you take the information that the banks are telling you, and that is that they are still under accumulation. Money, smart money is buying big banks. And that means that the smart money is BULLISH on the market. So where do we put our money?
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