The financial sector has led the way in 2012 with gains of nearly
20%, double the S&P 500's performance. The boys in Banking know how
to make easy money with no end in sight. With interest rates all but
guaranteed to remain at record lows, basically free money, the cash
machine will be busy spitting out money for these institutions.
My favorite way to trade financials is through the Financial Select Sector SPDR [2] (NYSE: XLF [3])
ETF. Half of XLF's top ten holdings are bank stocks, including Bank of
America, Wells Fargo and JP Morgan Chase. These three banks, which make
up more than 20% of XLF's valuation, reported upbeat earnings [4] last week.
XLF is up 35% in a few short months from the $11.50 base formed in December. The question now is how to profit [5] from this sector's strength while limiting risk on any pullback.
And there's plenty of upside potential. Just a halfway retrenchment
from the 2009 lows to the 2007 highs targets an objective at $22, a 40%
gain if you bought shares [6] at current prices.
An
aggressive investor could buy shares and place an exit order on any
brake below the established trend line at $15. All too often, however, a
short-term fluctuation forces out positions before then moving in the
desired direction. (more)
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