The press is giving too much credence to the effect an interest rate hike would have on the markets and on the financial sector. First of all, the fact that the Fed has been debating whether or not to raise rates by a paltry meaningless 0.25 basis points speaks volumes. The Fed clearly understands that this recovery is nothing but smoke and mirrors; the main driving force behind being hot money. Ignore the yield curve bank stocks are a bargain…… based on a long-term investment horizon.
Secondly, deflation is more of an issue than inflation. Take a look around you. You can start with Oil and go down the commodity ladder; copper, Iron ore, coal, etc., are all trading significantly off their highs. Instead of marching to the drum beat of the naysayers, march to your own drumbeat; opportunity could be in the air.
Let’s take a look at the once mighty Citibank; from a long term perspective it appears to be a bargain
The long-term chart certainly looks terrible and the stock appears to have made hardly any headway since 2008. One could simply state that Citibank has not made much headway because it is a rotten stock, but other than perhaps bringing on a brief moment of satisfaction, it would change nothing. However, if you discard the lens of negativity and take a look at the chart in an unbiased manner, you might spot something many others are missing. We will at this chart shortly. Are all the regional banks suffering like this? Logic dictates that there are strong players out there; take a look at the picture below
PNC bank a competitor to Citibank is holding up very well
PNC bank appears to be thriving and the stock is trading well above its 2009 highs. One thing is certainly clear, every major market crash, proved to be nothing but opportunity knocking in disguise. If one understands the principles of mass psychology, then just by utilizing this one tool you could do rather well, provided you are patient and buy when there is panic and sell when the crowd is Euphoric. Don’t mistake bullish with Euphoric.
PNC is likely to test 72, with a possible overshoot to 67 before it attempts to challenge 100.00. As long as it does not close below 50 on a monthly basis, the outlook will remain bullish.
A closer look at Citibank
If we look at Citibank but through the eyes of an observer, the picture looks entirely different. Bias has a way of clouding one’s judgement, especially if one is listening to many of the talking heads posing as experts, but who are better qualified for the post of B.S. Artist. An observer starts off on neutral ground and examines the data through a neutral lens
While others might view the chart as disastrous, we see a potential opportunity. Notice the massive channel formation. The longer the channel formation, the stronger the breakout is when it finally occurs. As it has pulled back so much from its highs, the breakout is likely to occur to the upside. A monthly close above 63 will virtually guarantee a move to the 100 and then 150 ranges.
Is it time to jump into bank stocks; are there any great plays out there right now?
If you are willing to take on some risk now might not be a bad time to put the following strategies to use.
Suggested strategies for those willing to take on a bit of risk
There are Two options on the Table
Banking Stocks strategy one
Wait for a pullback to roughly the 38.00 ranges and then purchase LEAPS; these are options that have more than one year of time on them.
Banking stocks Strategy two
Wait for a monthly breakout above 63.00 and then purchase leaps. The stock in question is Citibank. If you are looking for some of the strongest regional players, then you could put the following technique to use on PNC, BKU, STI, JPM, etc.