Banks Hold Clues to Next Market Rally

U.S. stock indices (unlike their European counterparts) are still solidly positive for 2013. Yet, the recent consolidation of the 2013 rally has many wondering however whether it's time to get out or reload. The answer to this paramount of questions might just be found in the banking and brokerage stocks. 

For one, banking and brokerage stocks are a broader indicator to how well the economy is doing; banking stocks are worth watching given the importance of the lending business to economic growth.

Second, the financials make up roughly 15% of the S&P 500, and as such, financials are the second largest sector in the S&P 500. In other words, any rally in the S&P 500 is difficult to stage without at least some participation of the financials.

Third, just because everyone follows the performance of the financial sector so closely, it may just have a self fulfilling prophecy effect.

Here are two charts to watch for clues as to when the broader market might be ready to power higher again:

JPMorgan JPM staged an important chart breakout in December. The stock is currently looking to re-test that breakout point near the $45 - $46 area. If and when the stock reaches those levels, it will again look more attractive to institutional investors.

The Financial Select Sector SPDR etf (XLF) broke past a multi-year resistance area near $17 in January. Much like JPMorgan Chase & Co (JPM) the etf is now in the process of retesting this über-important support zone. Once prices start to stabilize around this level and get their initial bid, it may be as good a time as any to start buying more stocks.