As you know, the big short covering rally in equities was led primarily by energy and materials stocks. We observed this opportunity a few weeks back when the bullish percents in the $BPENER and $BPMATE both had readings under 5. This hasn't happened in the energy sector since 2008, and has occurred only twice in the materials sector since 2008.
The next leg in equities, if we are to break up and away from this range, will be led by the banks. Tonight I wanted to share the following charts, which are taking on a much more bullish look. They are of the Bank Index; $BKX.
Here's a quick look at the base on the daily chart:
Here's another look on the 30 minute, which shows prices coiled up, ready to at least test the upper end of this range once more.
If the banks do breakout, the reason I think they'll lead the market higher, is based on how much they could rally, and their next upside reference points. From a purely technical standpoint, take a look at the price by volume chart, which I've taken back 5 years.
As you can see, there is a pretty thin volume pocket overhead. Several regional banks have already started knifing through these pockets, but there are several more just waiting for the signal.
In summary, into strength, I'd look for quick swings in the banks.
Disclaimer: Long FAS Calls.