There may still be money in the banks.
The S&P Bank ETF (KBE) and the Financials Sector ETF (XLF) are down 6.5 and nearly 5 percent, respectively, this week. While the KBE tracks big banks like J.P. Morgan and Wells Fargo, the XLF tracks both banks and firms like insurance companies. Stepping back, the banks have had a robust run, noted Oppenheimer's head of technical analysis, Ari Wald. And this year could hold more upside, he said, though he is a bit more neutral in the near term.
"I think the key here is being patient, and I think it just needs some time. I think you want to see it carve out that base, but come second half of the year, we do think financials should continue to do well. So a little bit more neutral, near term," he said Thursday on CNBC's "Trading Nation."
Examining a chart of the XLF, Wald noted the recent weakness in the XLF is some "much-needed consolidation," adding that he does not believe it's "fully run its course."
Wald noted the XLF, on pace for its worst week since January of 2016, has indeed dipped into its January low, around the 23 level, but a rising 200-day moving average indicates there is still some "good long-term momentum."
The KBE closed Thursday in the green for its best day since March 1.
In the near term, financials will come under pressure as the yield curve flattens, said Chad Morganlander of Washington Crossing Advisors. He maintains a neutral view of the sector at this juncture.
"What we're anticipating is perhaps a 3 to 5 percent sell-off within the sector," he said, citing the flattening yield curve.
Indeed, the spread between the 10-year and have declined from 1.23 percent at the beginning of the year to 1.16 percent. And this is likely to continue, Morganlander said. He cited rising valuations, too, as a reason for remaining neutral on the space at this time.
In the long term, however, he is more constructive. He sees deregulation as a plus for the financials, along with the belief that "economic vitality" will become apparent in 2018 as the Federal Reserve is expected to raise interest rates, which will "bode well over the next three to five years for the financials."
