[Premium] A Deep Dive Into Financial Services Stocks
As I alluded to above, not all stocks in a sector are created equal so it's important to put in the work to find the winners. We want to avoid stocks like UCO Bank, which is down 85% in the past 4 years and sitting at all-time lows and stick to those that are near all-time highs or breaking out of large bases. With that reminder out of the way, let's get into the names showing relative strength.
First up is Bajaj Finance Ltd. which has been building a base since last July when it made new all-time highs. Despite the short-term pullback since April, momentum remains in a bullish range and prices are above their rising 200-day moving average. We want to be watching this and getting long on a breakout above 1,990 with a target near 2,280.
Bajaj Financial Services Ltd. looks almost exactly the same, so we want to be buyers on a breakout above 5,800 with a price target near 6,600.
Bharat Financial Inclusion broke out of a year-long base late last year and has been grinding higher ever since. A bearish momentum divergence at the recent highs suggests a pullback might be coming, and we want to be buyers as long as prices are above 940, with a price target up near 1,240. Ultimately this stock looks like it's headed back to its 2010 highs at 1,450 over the intermediate-term, but we'll re-evaluate at 1,240.
Similarly, Cholamandalam Investment & Finance Company Ltd. broke out of a year-long base late last year, reached our first price target near 1,510, and then broke out again. We want to be buying pullbacks in this stock as long as prices are above 1,510, with a price target near 1,940.
City Union Bank is breaking out of a 1-year base this week. We want to be buyers as long as prices are above 185, with a price target near 210. We ultimately want to see this breakout accelerate and momentum pushing decisively back into overbought conditions.
Dewan Housing Finance Corporation has been building a base since last October and is now back just below all-time highs. We want to be buying a breakout above 680 and taking profits near 815, at which point we'll re-evaluate.
Edelweiss Financial Services Ltd. hit all-time highs last September and has been consolidating since. We're back at the top of the range and want to be buying a breakout above 305 and taking profits near 350.
Gruh Finance is breaking out to new all-time highs this week. One concern I have is the possibility of a failed breakout since momentum isn't confirming these new highs, so we want to respect our risk management process and only be long if prices are above 685 and taking profits near 807. The stock may need more time to consolidate or it may just accelerate to the upside, we don't know, but it's important to be aware of the potential failed breakout and switch to a more neutral view if prices start getting back below our 685 level.
HDFC has been consolidating for most of 2018 after a significant run and is now back at the highs of its range. We want to be buying a breakout above 2,015 and taking profits near 2,130.
Indusind Bank which broke out of a seven month base in late March, retested the breakout area, and has headed higher since. We want to be buying weakness toward 1,805 and taking profits near 1,950 at which we’ll reevaluate. Ultimately I think this move is just getting started and prices ultimately head to our second price target near 2,180 over the intermediate-term.
Kotak Mahindra Bank has been on a tear since breaking out of its seven month long base in March. It’s met our first price target at 1,195, so we want to be long above that level with a target up near 1,325.
L&T Finance Holdings is the only weekly chart on this list, but after a significant run throughout 2016 and 2017, it began consolidating in September and is breaking out again. As long as prices are above 177 we want to be long and taking profits near 257.
Magma Fincorp broke out of a 2+ year base in June of 2017, met our initial price target near 183 and has been consolidating since. Momentum didn't hit oversold conditions during this correction and prices remain above a rising 200-day moving average, so we want to be buying a breakout above 184 and taking profits near 253.
Manappuram Finance Ltd. made new all-time highs this week after consolidating for most of 2017. We want to be long the stock above 126 and taking profits near 144, but like Gruh Finance we want to be aware of the potential failed breakout so that we can manage risk if it does move lower and consolidate further.
Shriram City Union Finance Ltd. isn't quite ready on the long side, but is one to keep on our radars. It's been consolidating since late 2016 and we want to be buying a breakout above 2,590 if/when it occurs, with a price target near 3,125.
Shriram Transport Finance Corporation Ltd. broke out of its multi-year base last September, retested support, and met our initial price target near 1,615. Prices have put in a failed breakout above that level which suggests some short-term weakness is ahead. With that being said, if prices do get back above 1,615 we want to be buying the breakout and taking profits near 2,155.
Ujjivan Financial Services Ltd. has been stuck within a symmetrical triangle since late 2016, but is attempting a breakout supported by a rising 200-day moving average and bullish momentum characteristics. We want to be buyers of a breakout above the year-to-date highs 425 and taking profits near 483, at which point we'll re-evaluate. Symmetrical triangles represent indecision between buyers and sellers, so the resolution of this pattern will likely be the start of a new long-term trend in the stock. Given the action we're seeing in the stock and throughout the sector, I ultimately think this resolves higher, but we'll see.
The last name on our list is Yes Bank Ltd. Again, like Shriram City Union Finance Ltd. it isn't quite ready on the long side, but is a name to watch as it's been consolidating nicely since mid-2017. A breakout above 383 would be our signal to get long and we'd want to be taking profits near 445.
The Bottom Line: The Financial Services sector continues to show its strength on both an absolute and relative basis. The list of names above present opportunities on the long side with assymetric reward/risk ratios and well-define risk management levels.
I'd also like to point out that all of these stocks all have similar characteristics in that they have a rising 200-day moving average; bullish momentum characteristics; and are either breaking out, consolidating after a breakout, or look poised to break out in the near-term. This is not an accident. These are characteristics of stocks showing relative strength and those are the names we want to be involved in.
Allstarcharts Team