Jim Cramer thinks now is a terrific time to own financials. He believes a confluence of events are coming together that should generate bullish tailwinds.
"First, interest rates are again rising, with the yield on the 10-year higher again on Tuesday," Cramer said. "When rates go up, banks make more money from the difference between your deposits and the loans they make."
That should boost the bottom line long-term. However, Cramer sees two other catalysts, and they're both somewhat immediate.
"On March 20, we get the results of the Dodd/Frank stress tests, which show how well banks will hold up in the event of another recession or financial crisis," he said, noting that he believes the results will be largely positive.
"Then, on March 26, there's the annual Comprehensive Capital Analysis and Review, or CCAR, where we find out whether the Federal Reserve has approved or rejected the banks' plans to return capital to shareholders," Cramer said. Last year, results were greeted with great enthusiasm.
Because Cramer believes 1) higher rates, 2) the Dodd/Frank stress test results, and 3) this year's CCAR results, will all be bullish, he believes now is a good time to establish a new position, ahead of the expected moves.
Although Cramer has identified many different ways to invest in banks, on Tuesday he was particularly keen on a long position in Bank of America, not only for fundamentals, but also because of technical analysis.
According to insights provided by top analyst Tim Collins, chart patterns suggest Bank of America could trade up to $18.50 in a relative short amount of time.
Collins noted that BofA just broke out of a descending triangle formation earlier this month and is now consolidating in what's known as a flag pattern. The flag pattern typically indicates that the stock is consolidating before resuming its previous move. In the case of Bank of America, the previous move was higher.
Based on the breakout and the flag formation, Collins could see the stock making its way up to $18.50, in the very near future.
To confirm his outlook, Collins said patterns in the weekly chart of BofA looked equally promising, that Fibonacci levels were constructive, and that patterns involving the so-called accumulation/distribution line were also positive.
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All told, Jim Cramer sees every reason for Bank of America to advance. "I think it makes sense to get yourself some financial exposure before the fundamental catalysts outlined above actually come out. And the charts, as interpreted by Tim Collins, indicate that Bank of America, is a good way to play it."
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