The bank stock rally finally kicked into gear. And, there’s more upside ahead.

We noted the potential for a bank stock rally last month. The chart of the KBW Bank Index (BKX) had started to move higher. It had just crossed above all of its various moving average lines.

And, that’s the typical sort of action we get at the start of an intermediate-term rally phase.

BKX popped 13% higher on Monday. That’s a tremendous one-day gain for the “boring” banking sector. But, there’s still plenty of room for the banks to press higher.

Here’s the updated chart…

BKX has rallied up to the first resistance line of its June high. This is a natural area at which the sector should pause, and perhaps even pullback a bit.

The Commodity Channel Index (CCI) – a momentum indicator – is overbought. And, similar conditions have led to pullbacks in the bank stocks before.

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But, look at the other momentum indicators like the MACD and the RSI. They’re still in neutral territory – well below the levels they hit back in June. There’s still plenty of room for them to work higher before reaching overbought levels.

And, there isn’t any sign of “negative divergence” where the index moves higher and the indicators move lower – which would be a warning sign for an impending reversal of the trend.

So, it looks like this rally in the bank sector is the “real deal.” At a minimum, BKX should challenge the next resistance level, near 96, in the weeks ahead. And, if the rally really explodes, it’s possible the index could make it all the way up to 110.

Traders should take advantage of any short-term weakness in the sector and buy the banks.

Best regards and good trading,

Jeff Clark

Reader Mailbag

In today’s mailbag, Jeff Clark Trader members James and Ernest comment on Friday’s popular market order essay

Jeff, this is great advice and something that many traders aren’t aware of. I’ve experienced getting shafted by entering market orders in the past.

Usually, it was not a significant amount because I was entering small orders. But these hits to your accounts can add up, in time, to a significant amount. It would’ve been good to have known this when I first started trading. Now, I only enter limit orders. Thank you for your wisdom.

– James

Jeff, regarding limit orders, your teaching skills are evident in this essay. Thanks. For me, the information is timely. I’m just getting started and have placed three small market orders that cost me more than they should have. I read your lesson, smacked my forehead, and hit the save button.

– Ernest

Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming – and send us any questions – at [email protected].