How Will Financial Stocks Perform in 2013?

L.A. Little explains why he thinks specific stocks in the financial sector will do well in 2013.

Well, the housing markets been battered over the last few years and coming into 2013, the question is on my mind, we’ve started to recover just a little bit.  Is that good for the financial stocks coming into 2013, LA?

Well, it’s great for the financial stocks, but when you say they’ve recovered a little bit, they’ve been the leading sector all through 2012, so when you come out of a bear market, a downturn, whatever you want to call it, there are going to be sectors that lead, and you have to figure out what those are.  Housing has been one of them, but financials in 2012 were up about 25%, 30%, so it’s not as if they were not doing anything.  They were probably the leading sector besides housing.  You’ve got some names in there that really benefit from housings recovery.  For example, Wells Fargo (WFC).

A huge loan portfolio, they have probably the largest exposure in that area and strong balance sheet comparatively.

Yeah, so they stand to gain, if the market continues, and there’s a lot of room for it to continue to go up.  There’s a lot of room for the market and housing to recover, so something like a Wells Fargo that has exposure to that might be—out of all the financials—something to really take a good look at.

Well, you know I’m a technical analyst guy, so when I look at what’s happening, I’m really looking at the charts as well, certainly understand a fundamental side, but the charts are what tells you that Wells Fargo—Wells Fargo broke out over multiple time frames on the long-term time frame and when it does that, usually consolidates two, three, four, maybe five months, and then it eventually carries forward in the direction of the break, and so I would be looking for Wells Fargo as probably one of the top financials, if in fact the financials in general break out, that will probably the leader.

Is this something that an investor or trader could look to take on a pullback as opposed to a breakout, or is it good enough that someone might even consider adding to a position or initiating an investment on a breakout?

You could do it on the breakout, of course, you’re talking about a breakout on a different time frame.  You would be looking at your shorter-term time frames.  You’re actually buying a retrace now here in late 2012, on Wells Fargo, if you’re purchasing.  That breakout area was about 34, 35.  If Wells Fargo drifts down into the 32, 33 area, that is the retrace.  That’s what I call a retest, regenerate.  In other words, it comes back, it tells you whether or not it wants to break back down.  If it doesn’t, it’s going to go the other way, and that’s the direction you’ve got to be on.