The postelection rally sent all kinds of stocks soaring...
Small-cap stocks were one of the biggest winners. The broad market rallied hard, too. And so did another sector crucial for the overall economy... financials.
Even banks and insurance companies jumped after the election. The overall sector soared 6.1% the following day. And the largest bank in the U.S. was up 11.5%.
That massive one-day rally sent the stock into "overbought" territory. Normally, that would be a bad sign. But this time, according to history, it means shares could rise another 15% from here... And that makes this a blue chip to consider owning right now.
You might not think of banks as an election trade. But they certainly turned into one this time around. And it makes sense when you think about it.
Donald Trump's victory has many folks excited about the economy. Plus, under his administration, the chances of deregulation are higher going forward.
Those two outcomes should be good news for big banks... And that's why JPMorgan Chase (JPM) soared the day after the election.
Again, the stock jumped 11.5% in a day. It was the bank's best one-day return since 2020. Take a look...
JPMorgan Chase was already having a great year. The stock had returned more than 30% before Election Day. Now, this year's returns are nearing 50%.
The recent rally created a potential problem, though. It sent the stock to a relative strength index ("RSI") reading of 75... triggering an overbought extreme.
The RSI looks at recent price action and tells us if a stock has moved too far, too fast in either direction. When that happens, a reversal usually follows.
But that's not a guarantee. And in the case of JPMorgan Chase, history tells a different story.
To see it, I looked at every unique RSI reading of 75 or more since 1990. Those readings have happened 24 other times, or about once a year. And surprisingly, they aren't a sell signal for this banking giant. Take a look...
JPMorgan Chase didn't become the U.S.'s largest bank by accident. And thanks to that success, it has been a fantastic investment through the years... leading to 9.6% annual gains since 1990.
Still, you can do better if you buy after the RSI hits overbought levels like it did recently. It's counterintuitive, but true.
Similar setups led to 3.1% gains in six months, which is slight underperformance. But over a one-year period, the gain following this extreme increased to 15.3%... crushing a typical buy-and-hold strategy.
Plus, the stock was higher a year later 78% of the time. So the odds of success are on our side.
Again, overbought RSI setups usually lead to a period of dead money... or major losses. But that hasn't been the case for this banking giant.
Investors are excited about the opportunity in the banking sector. That sent JPMorgan Chase soaring. And while shares are up slightly since the election spike, the RSI has actually fallen.
That's further proof that this rally should continue. So if you're looking to get into this banking trade, you haven't missed it yet. JPM should be a solid performer over the next year.
Good investing,
Brett Eversole
Further Reading
"History tells us that higher prices usually lead to higher prices," Brett writes. With the stock market's historic return through October – and now, through the postelection rally – the outlook for the end of the year looks promising... Read more here.
"Regardless of how you feel, the market is happy to be past the election," Brett writes. We've seen rallies throughout the market since Election Day. But this sector saw one of its largest two-day rallies ever. And this might be just the beginning... Learn more here.
