Banks just passed a key level and it could signal more gains to come

Bank stocks have been breaking out, and one chart-minded analyst sees more room to run.

The financial sector has rallied more than 4 percent in the last week to more than 10-year highs, and Ari Wald of Oppenheimer sees continued upside for the group.

"I think the strength that we're seeing, and it started a couple of weeks ago, I think that's marking a new leg of outperformance here," Wald said Monday on CNBC's "Trading Nation."

Examining a chart of one large financial stock exchange-traded fund, the XLF, relative to the S&P 500, Wald pointed out a recent breakout from a yearlong consolidation pattern. The sector itself has recently begun breaking higher, he noted.

"What gives us conviction that this strength can continue is just how broad-based it's been. It's not just the banks; it's the banks, it's the brokers, it's insurance companies, it's the online exchanges, it's the asset managers. What we think this is, is a new turn, a round of leadership that should continue into the first quarter of 2018," he said. "Buy financials. They're breaking higher."

Wald recommends buying names like Bank of America.

The bank stocks are benefiting from the idea that the proposed tax bill could help the financial industry, said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management. Another reason for the stocks' recent strength is the notion that growth is set to pick up, he said.

"The market is starting to bet that growth is going to pick up and the yield curve is going to steepen, and that is going to help financials quite a lot," he said Monday on "Trading Nation."


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more