BAML: Here comes the big bank breakout

I’ve been talking about the idea that banks would / should lead the market into the next leg of the rally for a few weeks now. It appears that this breakout for the big bank stocks – which had been trapped at resistance since July – has already gotten underway. While most traders reference the XLF financial sector SPDR ETF when talking about bank stocks, the KBW Index is really the grandaddy, the old school traders’ standard.

Here’s BAML’s ace technical strategist Stephen Suttmeier with an important call on that index:

The KBW banks Index (BKX) is consolidating within the rising channel from late 2012 and is set up for a breakout that would set up a rally to channel resistance at 74-75. A break above 67 for the BKX would would complete the bullish consolidation…

Also, a steepening of the yield curve (10-year Treasury yields minus 2-year Treasury yields) tends to coincide with stronger relative price performance for the BKX vs. the S&P 500.

Here’s Stephen’s chart of the yield curve vs the BKX : S&P 500 ratio:

If this breakout does occur, he likes the charts of JPM, WFC and C the best in the group as they’ve all consolidated, held important support levels and are set-up to go.

Source:

Chart Talk – Bank of America Merrill Lynch