For whatever reason, bank stocks just seem to “jive” really well with weekly candlestick charts – a timeframe I love to trade. Due to their sluggish nature, it’s easy to spot both trend reversals and continuations, sometimes even on the daily candlestick charts.
But by now, you’ve probably realized that I like to “zoom out” on certain trades. By looking at them from a weekly candlestick perspective, I can screen out day-to-day volatility. Doing so makes identifying longer-term trades a simpler affair.
Better yet, I don’t have to watch the charts or monitor my trades as closely.
Weekly candlestick trading is much more “fire and forget”, making my investing endeavors relatively worry free.
Because let’s be honest, nobody needs more stress in their lives.
Especially when their hard-earned dollars are at stake.
So, when I was running some analysis this morning, you could imagine how excited I got when I came across Banco Bradseco (NYSE: BBD), a Brazilian bank stock teetering on the edge of a cliff.
Ironically, BBD just posted an “earnings beat” yesterday when the bank surpassed analyst earnings per share (EPS) expectations. That didn’t really matter to investors, though, who sold the stock like no tomorrow in spite of the healthy financials. These days, the market has almost no confidence in banks “south of the border” after Mexico fired their finance chief, and it seems that sentiment extends to Brazilian institutions as well.
With bond yields a tangled mess, banking bulls have been converted into bears en masse over the last few weeks. That’s okay, though, because traders have been given an opportunity to short BBD as a result.
In the weekly candlestick chart above, you can see that BBD is giving us extremely strong signals of a downside reversal. A double top was just formed a few weeks ago when contact with the upper Bollinger Band (BB) was made and stochastics are still high despite the recent sell-off.
Those three factors, when combined, add up to an all-star short setup.
Even more important, of course, is the fact that share prices descended below the lows of the last four candle bodies. Any time a stock drops below a recent series of candles, that’s usually an indicator that it’s getting ready for a short-term dip.
Which is even more evidence that BBD is about to crater in this case.
But this stock is special, and in many ways even better than a typical bank stock.
Because in addition to the current short setup, BBD just completed two other fantastic trades. Back in March of this year, we had a similar short trade that resulted in a nice gain, followed by yet another setup, this time to the upside.
Contact with the lower BB was made, and from there, it was all gravy, leading up to contact with the upper BB just a few weeks ago.
BBD could continue ping-ponging off the upper and lower BBs for months, making this stock an absolute portfolio “honey hole” over the next year.
So, while I wish the banking industry luck in the future, I can’t help but hope this up-and-down trend continues.
Because if it does, traders stand to make a whole heap of cash in a series of relatively easy trades.
Which is precisely the type of bank-driven “monetary easing” I can get behind.
