CIT Group and Other Rising Financial Stocks

It is no secret that financial stocks have been the best performing sector during the past month. Last week that trend continued as JP Morgan reported above expectations and we are just starting earnings season so there could be more positive surprises around the corner. At times like this it's worth taking a step back from the daily gyrations and looking at a long term chart like the monthly chart below of XLF, the financials sector ETF. As you can see, the sector was in a downtrend in 2007-2009 and then after a short rebound XLF was range-bound for all of 2010. Last week's trading sets the stage for a test of the top of the range around $17.00. A breakout that can print a green monthly candle would put the financial sector into a Stage 2 uptrend as the 30-week moving average is upward sloping.

So we have a sector that has underperformed several years and could now be on the verge of a sustained period of outperformance. Will it happen? I don't know. I am not trying to predict what will happen, rather to be ready for what might happen.

Part of my preparation is taking note of the financial stocks hitting all-time highs. Including CIT (CIT Group | NYSE), FSFG (First Savings Financial Group | NASDAQ), PEOP (Peoples Federal Bancshares | NASDAQ), LB (Laurentian Bank of Canada | TSX), and three small cap financial stocks in the table below of US-listed stocks that are at all-time highs and are being accumulated by institutions. My rationale is that institutions can provide the buying pressure that will keep the stocks moving higher.

Institutional Buying
Symbol	Sector	F score	Z score	Market Cap	EPS Q/Q	Sales Q/Q	Div.	Pay out	Inst Own	Inst Trans	Target Price
KRO	Basic Materials	3	8.0	2.26B	273%	21%	2%	0%	2%	20%	53.0
RNO	Basic Materials	5	NaN	4.27B	181%	-6%	%	%	46%	81%	26.0
AMRS	Healthcare	NaN	NaN	1.41B	-189%	2%	%	%	7%	22%	24.0
EBMT	Financial	NaN	NaN	46.88M	-34%	-2%	2%	47%	8%	48%	10.5
FABK	Financial	NaN	NaN	50.34M	31%	1%	2%	127%	7%	38%
OBAF	Financial	NaN	NaN	64.82M	460%	-0%	%	%	15%	21%
OCZ	Technology	NaN	4.0	239.00M	-539%	40%	%	%	21%	24%	9.0
SPSC	Technology	NaN	NaN	184.30M	86%	19%	%	0%	40%	56%	17.8
SQI	Technology	NaN	NaN	291.94M	-55%	19%	%	0%	27%	53%	15.0
A high Piotroski F-score indicates financial strength, and a low Altman Z-score predicts bankruptcy  Data are from GrahamInvestor.com, Yahoo Finance, and Finviz.com

I wanted to delve into CIT Group in more detail since it had a very strong breakout on Friday and closed at its highs of the day. Here is a daily chart showing the breakout on above-average volume from the blue Darvas box. The Elder Force panel at the bottom of the figure shows lots of upward spikes indicating that there is high volume buying the stock and moving the price up.

Another bullish piece of information is that insiders have been buying CIT, according to Finviz data. Clearly this stock has some tailwinds that should put it in a good position if the sector strength continues.

I tried to visit the company's website (www.cit.com) but their website was having server issues -- I'm not impressed! Via reuters.com: CIT Group Inc. (CIT) is a bank holding company, which provides commercial financing and leasing products, and management advisory services to clients in a variety of industries. CIT operates primarily in North America, with locations in Europe, Latin America, Australia and the Asia-Pacific region. CIT bank is its primary bank subsidiary. The Company provides financing and leasing capital to its clients and their customers in over 30 industries and 50 countries. It serves clients in a variety of industries, including transportation, aerospace and rail, manufacturing, wholesaling, retailing, healthcare, communications, media and entertainment, and various service-related industries. The Company’s products include asset-based loans, secured lines of credit, leases (operating, finance and leveraged), vendor finance programs, import and export financing, debtor-in-possession/turnaround financing, acquisition and expansion financing, letters of credit / trade acceptances structuring and small business loans. Its services include financial risk management, asset management and servicing, merger and acquisition advisory services, debt restructuring, credit protection, account receivables collection, debt underwriting and syndication, capital markets, and insurance services. The Company operates through five segments: Corporate Finance, Transportation Finance, Trade Finance, Vendor Finance and Consumer Finance. In November 2009, the Company filed for bankruptcy. In December 2009, CIT emerged from bankruptcy. In April 2010, the Company sold its 50% interest in the CIT Business Credit Canada Inc. (CIT Business Credit) joint venture to Canadian Imperial Bank of Commerce (CIBC). In July 2010, CIT Group Inc. sold its Australian and New Zealand Vendor Finance business to Bank of Queensland Limited.

The Tape Tells All. - Stan Weinstein

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