During the initial phase of the market recovery, from the March lows to the early May highs, financials were a primary driver of the move. Since that time, financials have lagged badly as sector rotation has caused money to flee to other, better-performing sectors over the last 8 weeks or so. However, the relative outperformance that financials enjoyed in the Spring has returned of late. Will it continue? That's hard to say, but our first major clue is upon us. Check out the following chart:
Should the sector break above key near-term price resistance, it would be prudent to look for companies within the sector primed to participate. One such stock could be E*Trade Financial (ETFC) - for two reasons. First, let's look at the one year chart:
More interesting, however, was the trading in the last 15 minutes on Friday as volume exploded on ETFC. Check this out:
Over the last 90 days, ETFC has produced average daily volume of 47 million shares. In the last 15 minutes of trading on Friday, ETFC traded 38 million shares. Will there be news to account for such heavy volume? It's impossible to say, but if technicals precede fundamentals......
Given the possible breakout on financials, I scanned the financial universe, searching for potential short-term trade candidates within that sector, to benefit from any additional strength in the group. For the more aggressive active trader, I also used scans searching for small dollar stocks in the $1-$5 range that are showing increasing volume trends and other positive technical signs. To access these trade candidates, complete with my technical commentary, click here.