Early this month, I said a rotation has likely started for the most beaten down sectors like energy and banking to shine again (see here). Sure enough, both of them have been doing quite well in the past few weeks. Here is the current bank index chart, which is clearly showing a straight line up since early Nov. Of course, you can argue this is merely a dead cat bounce that it will repeat what it did back in June to back down again.
Sure no guarantee that it must be a new uptrend for banks but I'm more convinced that banking as a sector has bottomed by now and is ready to go much higher from here. As shown below in the weekly chart, the sector has broken out from the multi months triangle since early Nov and has even burst through the immediate resistance from the Jun highs. This is quite bullish, especially supported by the very strong weekly momentum. I think the sector is moving towards challenging its recent major highs before the Mar crash in the next few months ahead.
Having said that, don't expect a straight line up for too long and rush to buy bank stocks now. Most likely it may cool off a bit first to take a rest before resuming its next leg up. This will be healthy for the sector if it wants to indeed sustain its uptrend from here!
By the way, regarding the overall market, be aware the first two weeks or so are typically the time for money managers to dump stocks to realize their capital gains and rebalance the portfolio for the year end. So don't be surprised to see some selloffs in the next week or two, especially right now with the sentiment supper high, more so than that just before the Mar crash. This is a contrary indicator, suggesting the risk is quite pronounced at the moment. Be cautious!!
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