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Did You Bank on Our Banking Breakouts?

01/15/2020 9:33 am EST

Focus: TECHNICAL

Suri Duddella

Trader and Author, suriNotes.com

In October, Suri Duddella provided a series of trade set-ups in the Banking Sector based on the Rectangle Channel Pattern that proved prescient.

As U.S. stock markets keep making record highs in the new year, the fourth-quarter earnings season will kick off this week from January 14, 2020. Markets seem to shrug off bad geopolitical or recent Iran's news and may continue to see new highs. 

This week starts off with Bank Stock earnings. In 2019, the Bank Index gained 32.14%, beating the S&P 500 performance of 28.8%. 

In this article, we update the Banks Stocks and their Rectangle Chart patterns:"Trading Banking Breakouts/Breakdowns" published on Oct. 16, 2019.

Here is a list of bank stocks and their performances in 2019 & 2020.

banks

Trading Rectangle Chart Patterns

Rectangle Channel patterns are formed by price action between two key trendlines bound by multiple equal (near) highs and lows. The duration of the pattern can be a few days to several months. Longer duration patterns are considered to be more reliable. The pattern must have at least two pivots (equal highs or equal lows) on each of the trendlines.

The price breakout can occur in any direction from the pattern, but the general belief is price typically breaks out in the same direction as prior trend before the pattern formation. The volume inside the pattern is non-decisive, but volume tends to increase during the breakouts. 

rectangle

The following picture shows charts of JP Morgan (JPM), Citigroup (C), Goldman Sachs (GS) and Bank of America (BAC) and their trade set-ups based on using Rectangle Channel Chart patterns from the Oct. 16 article.  

4 charts

Trading Bank Stocks Rectangle Channel Patterns from Q4

  • JPMorgan was trading in a Rectangle Channel pattern from April 2019 to October 2019. The breakout level was $117.15 with targets of $123 and $129, and a stop at $111.
  •  Citigroup was trading in a Rectangle Channel pattern from April 2019 to October 2019. The breakout level was $73.08 with targets of $78 and $84. The breakdown level was $61.94 with downside targets of $56 and $50.
  • Goldman Sachs was trading in a Rectangle Channel pattern from July 2019 to October 2019. Its breakout level was $222.25, with targets of $250 and $236. Its breakdown level was $193.71 with downside targets of $179 and $165.
  • Bank of America was trading in a Rectangle Channel pattern from April 2019 to October 2019. Its breakout level was $31.07 with targets of $33.50 and $35.93.

The following chart shows the same bank stocks with rectangle chart patterns and its trades marking on the breakout date after Oct. 16 and closing prices on Jan. 12, 2020.

jpmd

Here is what happened:

  • JP Morgan: JPM chart shows a rectangle chart pattern breakout on Oct. 15, 2019 at $119.68. It reached its Target zone of $123-$129 and continue to expand to the next target zone of $135-$142. 
  • Citigroup: Citigroup chart shows a rectangle chart pattern breakout on Oct. 28, 2019 at $73.58. It reached its target zone of $78.67-$84.24 by Dec. 27, 2019 and could continue higher.
  • Goldman Sachs: Goldman Sachs’ chart shows a rectangle chart pattern breakout on Nov. 7, 2019 at $223.29. It reached its target zone of $236-$250 by Jan. 7, 2020 and could continue higher.
  • Bank of America: Bank of America’s chart shows a rectangle chart pattern breakout on Oct. 22, 2019 at $31.20. It reached its target zone of $33.50-$35.93 by Dec. 02, 2019.

These four examples from the banking sector shows the power of the Rectangle Channel Breakout Pattern. If a trader bought 100 shares of each those stocks at their breakout levels and held them until today, those trades would have earned roughly $6,200, close to a 14% return in just under three months. Annualized that comes to well over 50%!

Find more of Suri’s work at surinotes.com.

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