This Sector Holds All The Cards

There have been many strong stock sectors that lead the markets higher in 2012. Most traders and investors would point to housing, technology, and energy as the strongest sectors in 2012, however, it is the financial stocks that really lead the markets higher. This important industry group is also a critical sector for the stock market. You see, the central banks in the United States and Europe have been printing money at an alarming rate in order to rescue the large financial institutions from the abyss for over four years now.

Why? Look To Federal Funds Rate
Think about it, the fed funds rate (overnight lending rate to the large banks) has been held at zero percent since December 2008. This is the reason why banks pay you and I very little interest in a savings account. Since the fed funds rate is so low, the central banks have continued to buy U.S. Treasury Notes and mortgage backed securities (MBS). The funny thing is that the central banks buy these bonds from the large agency banks such as Goldman Sachs Group Inc. (GS), Jefferies Group Inc. (JEF), Morgan Stanley (MS) and others instead of buying the bonds directly from the U.S. government. The central bank even pays a premium for these bonds, so this is a clear indication that they are working very hard to try and bail out the large banking institutions.

So it is safe to say, as long as the financial stocks hold up and trade higher the major stock indexes should hold up as well. Traders and investors should simply continue to watch and follow the financial stocks very closely. If this important industry group begins to sell off with any conviction then it could spell real trouble in the stock market. Until, then the major stock indexes could just continue to grind and inflate higher.

Sector 'ETF'
J.P. Morgan Chase & Co. (JPM) is by far the most important financial stock in the United States and possibly the world. This stock can be viewed as a financial ETF for the entire sector. The stock has soared sharply higher since June 4, 2012. This is when the central banks in Europe promised more money printing, to their credit the money printing has worked to get the large financial stocks and the stock markets sharply higher. JPM stock is now approaching the high pivot resistance area at $46.49 which was last reached in March 2012. The stock will also have more daily chart resistance around the $50.00 level.

A few other financials that traders should follow include Bank of America Corp. (BAC), Deutsche Bank AG (USA) (DB) and UBS AG (USA) (UBS). While all of the leading financial stocks are important J.P. Morgan Chase & Co. is by far the most important stock in the sector and possibly the entire stock market.