Will It Be an Early Christmas for the Brokers?

11/19/2014 10:40 am EST

Focus: STOCKS

Thomas Aspray

, Professional Trader & Analyst

Securities brokers and dealers are likely to benefit from an upward surge in stock prices, so MoneyShow's Tom Aspray reviews the seasonal and technical outlook to see if two stocks in this industry group should be considered by traders for new purchase.

The stock market's push through the week-long resistance suggests that a correction will be coming from higher levels. Though the S&P 500 A/D line did make another new high Tuesday, the market internals-while positive-are not that impressive.

In terms of sectors, the rally was fairly broad based with the S&P 500 and Nasdaq 100 both making new highs. The semiconductors were strong as the Semiconductor Holders (SMH) closed above the September 19 highs.

As I have mentioned recently, the last two weeks of November are typically weak from a seasonal perspective, but as long as stocks do not give up all their gains in the next few days, it is looking as though stocks may not follow the pattern this year.

A day or more of very strong A/D numbers are needed to signal upward acceleration from current levels. The high bullish sentiment is still a concern but extreme readings can often lead by a number of weeks.

The securities brokers and dealers are likely to benefit from an upward surge in stock prices. A look at the seasonal and technical outlook for this group will help demonstrate why these two stocks in this industry group should be considered by traders for new purchase.

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Chart Analysis: The Securities Broker Dealer Index (XBD) is composed of 18 different stocks.

  • XBD had a low of 153.58 on October 15 and had a high last week of 174.54, which was a gain of 13.6%.
  • The September high of 177.87 has just been exceeded with the weekly starc+ band at 183.54.
  • The quarterly projected pivot resistance is at 190.61.
  • The seasonal trend analysis typically makes a low on October 10.
  • The weekly chart shows that a secondary low typically comes on this Friday, November 21.
  • The group typically rallies until January 9 and then forms a secondary high in April.
  • The weekly relative performance analysis (not shown) has been above its WMA since the start of August.
  • The 20-day EMA is at 173.73 with additional support in the 170-171.50 area.

The Charles Schwab Corp. (SCHW) has been range bound in November as it has been bumping into the quarterly pivot at $28.92.

  • SCHW is up 11.94% YTD as it is just slightly lagging the Spyder Trust (SPY).
  • There is stronger resistance now in the $29-$30 area.
  • The daily relative performance completed its bottom formation (line b) in late October.
  • The RS line has now pulled back to just below its WMA.
  • The weekly relative performance (not shown) is just slightly below its WMA.
  • The daily OBV broke through its resistance soon after the October lows.
  • The OBV continues to hold above its WMA.
  • The 20-day EMA is at $28.40 with the monthly pivot at $27.32.

NEXT PAGE: Another Financial Stock to Watch

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Raymond James (RJF) is a $7.9 billion financial services and brokerage company with a current yield of 1.14%..

  • RJF has been lagging the Spyder Trust (SPY) as it is up just 8.66% versus a 12.85% gain for the SPY.
  • The weekly chart shows that the early 2014 highs, line a, was overcome two weeks ago.
  • This may have completed the weekly continuation pattern, lines a and b.
  • The weekly starc- band is at $59.23 with the quarterly pivot resistance is at $60.60.
  • The upside targets from the formation are in the $67-$69 area.
  • The weekly RS line moved above its WMA in late July.
  • It continues to indicate that RJF is a market leader.
  • The weekly OBV has broken out to new highs as the major resistance at line d has been overcome.

The daily chart of Raymond James (RJF) shows that it has been correcting from the high at $57.58 for the past five days.

  • It is now retesting the breakout level with the 20-day EMA at $55.58.
  • The daily starc- band is at $54.94 with the short-term 38.2% Fibonacci retracement support at $53.94.
  • The daily relative performance did confirm the recent highs, but has just dropped below its WMA.
  • The RS line is still well above the support at line g.
  • The daily OBV, unlike the weekly, did not breakout to the upside with prices as it has turned down from resistance at line h.
  • The OBV has now turned up from below its WMA.
  • The daily starc+ band is at $58.47 with the upper trend line at $59.22.

What it Means: As I noted at the end of October's Why Stocks Must Get Even Stronger, further strength in the market was needed to resolve some of the weekly technical divergences.

This has not been my favored scenario, but another strong week will clearly improve the short-term outlook, creating an initial floor for the S&P 500 in the 2025-2030 area.

Traders should look to these two stocks with Raymond James (RJF) being my favorite. Since these stocks typically top in January, these recommendations are more suited for traders.

How to Profit: For Raymond James (RJF) would go 50% long at $55.38 or better and 50% long at $54.22 with a stop at $52.47 (risk of approx. 4.2%).

For the Charles Schwab Corp. (SCHW) would go 50% long at $28.18 or better and 50% long at $27.28 with a stop at $26.46 (risk of approx. 4.6%).

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