Financial stocks have shown relative strength in recent weeks, and Tuesday’s rally in the sector on a jump in interest rates favors another leg higher. Among the best-looking bank stocks from a technical perspective is Bank of New York Mellon (NYSE: BK).

#-ad_banner-#On Tuesday, BK rallied more than 2% and right back to a resistance line that dates back to late March. The stock now looks poised to break past this resistance for another leg higher.

One of my early trading mentors told me to always have a watchlist of the big-name broker and banking stocks front and center to look for clues to the broader market’s direction. 

In the longer term, banks facilitate credit and thus help spur the economy. And because the financial sector has the second-largest weighting in the S&P 500, it can impact the market on a daily and weekly basis.

On an intraday basis, watching the financials can help you predict the day’s trend. If banks are weak in the first few hours of trading, then more often than not, the broader market has limited upside. Strength in the sector portends gains in the broader market. 

On Tuesday, the broader market was weak in the first hour of trading, but I noted that banking and broker stocks, including BK, were rallying. This turned out to be a great tell for the broader market, accurately forecasting that the day’s downside was limited. After hitting a low within the first hour of trading, the S&P 500 closed modestly higher on the day.

In addition to the rise in long-term interest rates, Tuesday’s move in the banking and broker stocks was sparked in part by a Senate hearing on high-frequency trading that was not nearly as bad for the sector as traders had assumed. 

There hasn’t been a ton of news surrounding BK in particular lately, but the bank is scheduled to announce earnings in a month. However, it’s the charts that have me bullish on BK right now. They strongly predict higher prices in the near term and possibly beyond. 

Starting with the weekly chart, note the tremendous amount of intraweek volatility the stock experienced in late 2008 and early 2009, at the depth of the financial crisis and just as the broader stock market put in what was possibly a generational bottom. 

After a strong rally, BK revisited the early 2009 lows in the autumn of 2011, at the height of the European debt crisis. The stock found support and began a rally that broke past multi-year resistance in late 2013. BK has consolidated above this former resistance area ever since and now looks ready for another push higher. 

On the daily chart below, note the impressive series of higher lows since its year-to-date low in February. 

Tuesday’s rally led to a strong “outside day” or “bullish engulfing candle,” and pushed BK right up against the six-month resistance area roughly between $36.60 and $35.90. The stock now looks poised to break through resistance and head toward $38.

Action to Take –>
— Buy BK at $35.50 or higher
— Set stop-loss at $34.60
— Set initial price target at $38 for a potential 7% gain in two to four weeks

This article was originally published at ProfitableTrading.com: 
The No. 1 Financial Stock to Buy Now According to the Charts

A former Chicago bond trader has developed a strategy that regular investors can use to collect more retirement income than they’ll ever need from moves just like the climb I’m expecting from BK. To learn how to multiply the income you collect from the world’s most reliable dividend payers, follow this link.