Many commentators have noted the strong outperformance of the financials, weighing the merits of the move and whether it is justified or not. That kind of argument is irrelevant to me, my job is to observe the price action and act on it, not try to justify it or predict it, but late at night with glass in hand you might be able to draw me in.
Remember we are always trying to put the odds in our favor, or rather, trying to increase our chances of success, this means when looking at a broad sector or specific area of the market we need to concentrate on the best in breed. If I find two banks with identical charts but one is JP Morgan and the other is the Far Away Bank of the Sacred Bleeding Heart, you can bet I’ll be going with what I know. If you want exposure to financials you could obviously just buy the sector with $XLF, but $JPM looks like a leader that has only just begun to show the way.
Friday’s move saw fresh 52-week highs on increased volume with the stock having consolidated and moved beyond the March 2012 highs. There are a whole host of other previous highs of the last 5 years now waiting between here and just above $50.
This might look like the stock has reason to pause here and may need several attempts to penetrate higher. I actually believe a lot of the hard work has already been done and $JPM could easily have enough momentum to get through $50 on the first attempt, in fact I’d argue if we look at the simplest chart of all, a monthly closing line, this thing has already broken out of the real dominant pattern of the last six years and is already well on its way.