With imminent rate hikes from the Fed and a newfound sense of stability for the Greek economy, the banks appear to be the surging sector.
But as we’ve found to be true on so many occasions on Wall Street, timing is everything when it comes to trading and investing.
So when is the right time for you to make a move on bank securities to earn a nice payday?
As you already know, the debt crisis for Greece recently caused what I would call “minor panic” among investors in the stock market. But Federal Reserve Chair Janet Yellen stayed consistent with her earlier remarks by saying that they’re still preparing to raise short-term interest rates later this year.
Additionally, second quarter earnings for banks are coming in as solid results – another promising sign for the financial sector.
And the Fed’s attitude mixed with some actual results that banks can hang their hat on could mean a big second half of 2015 for them…
But which financial stocks should you and I be focusing on, and when should we be ready to jump in? You have some choices in both regards, but choosing correctly could mean huge profits to round out the year.
Big or small banks?
Unless you know specifically how rate hikes could affect a particular small bank, stick to the big ones. Virtually all of the larger banks stand to benefit from the Fed’s position.
When do I buy?
With the way bank stocks are breaking out, you have three choices on when to enter the stock or stocks you want to buy, and it all comes down to your personality and comfort level…
And for all three, the only thing you need to know beforehand is that most of the financial stocks will have a recent price range between which the price has bounced up and down. A breakout is when the price jumps out of that price range.
1. Buy on the breakout
You can buy as soon as the stock breaks out of its previous price box, which is a great sign of strength. With this choice, you’re waiting for the stock to prove itself before jumping in. However, you won’t get the best entry price.
2. Buy on pullback after breakout
After the stock jumps out of its price box, it will more often than not pull back to the just above the ceiling of the previous price box. This gives you a better entry price than buying on the breakout, but there’s no guarantee it will pull back, wither.
3. Buy at bottom of current price box
If you want the absolute best entry price, you’ll be looking to enter the trade before the breakout, and at the lower end of the price range it’s in right now. This is the most conservative play with the lowest downside, but there’s no guarantee that the stock will ever break out.
Choose the one that suits you best.
