Major foreign banks are overlapping two of the best-performing sectors: financials and European markets. And this marriage is blossoming with Barclays, Deutsche Bank and a few other stocks.
Through Tuesday's close, the The STOXX Europe 600 Index was up 8.86% year to date, easily outperforming the S&P 500's drop of about 2%. Meanwhile, financials are the third-best S&P 500 sector this year, behind only the energy and health care sectors.
The iShares MSCI Europe Financials, which straddles these leading areas, is up 26% year to date. It climbed 10 of the past 11 weeks and could soon make it three straight monthly gains of more than 8%.
Two stocks stand out in the $2.995 billion fund as they trade near buy points.
Barclays shares are rising from support at the 10-week moving average and formed a three-weeks-tight pattern. The stock is near the 16.33 buy point.
Barclays Stock Forms Bullish Pattern
The U.K.-based bank is up 22% so far this year, as it extends an advance born from the Oct. 16 breakout past a 12.49 buy point. The three-weeks-tight formation provides an opportunity to add shares. But because the stock is more than 30% above its breakout, it may be risky to make an initial purchase at this new entry.
On Feb. 13, Barclays said it expects to increase profitability this year as it reported its investment bank and its domestic retail business boosted fourth-quarter results. Investment banking contributed 2.61 billion pounds, or more than one-third of the 6.96 billion pounds (about $9.01 billion) in quarterly revenue.
But the same day, the London-based bank disclosed that the Financial Conduct Authority, the U.K.'s financial regulator, is investigating Barclays' anti-money-laundering and financial crimes controls.
President Donald Trump's election victory buoyed trading. Also, a jump in deals and fixed income gave the bank a boost in the quarter.
More recently, European leaders have been moving to stimulate the economy. On March 18, Germany's parliament approved a major military and infrastructure spending program.
Deutsche Bank In Another Good Pattern
Deutsche Bank is another financial stock to watch because it just cleared another three-weeks-tight pattern. Shares Tuesday were just above the 25.03 buy point. The German-based bank's shares broke out of a base Jan. 14. About 40% of the stock's 47% year-to-date gain came after that breakout.
The bank beat analysts' estimates Jan. 30, but expenses from its turnaround plan and legal costs from a case over the acquisition of Postbank eroded quarterly profit. Deutsche Bank warned of more high costs this year, and slashed its guidance for its cost to income ratio, a gauge of efficiency. The bank also said it is restarting buybacks. Earlier in March, Deutsche Bank said it is slowing the pace of dividend increases.
Analysts expect Germany's largest lender to increase earnings 15% this year, with revenue up 5.5%, according to FactSet.
Other Banks To Watch
Few other major foreign banks are in bullish chart patterns, but UBS Group is forming a double-bottom base with a 35.05 buy point. The three previous breakouts in UBS' chart failed, and the stock has been stuck mainly between the 27 and 34 price levels for more than a year. The Relative Strength Rating is 79.
But the Swiss bank could have better luck this time: Analysts expect it to keep pulling itself out of a financial slough with EPS growth of 34% this year, according to FactSet.
UBS stock slid more than 7% Feb. 4, when the company reported Q4 results and warned that its $3 billion stock buyback plan could be roiled by Swiss capital requirements.
Away from Europe, Toronto-Dominion Bank is trying to break out of a cup with handle base with a 60.85 buy point. Shares edged above the entry on Tuesday, although volume was weak. The stock has been in a downtrend for three years, giving it an RS Rating of 77.
Jump-Start Your Investing Skills With IBD Digital
In the current weak market, IBD suggests stocks with average true range (ATR) of 3% or lower. The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior.
Stocks that tend to make large jumps or dives in daily action, the kind that can trigger sell rules and shake investors out of a stock, have a high ATR. Stocks that tend to make more incremental moves have lower ATRs.
Barclays has an ATR of 3.55%, Deutsche Bank's is 3.74%, UBS is 2.86% and Toronto-Dominion's is 1.71%.
