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Why the run in the banks might be near an end

Why the run in the banks might be near an end

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Why the run in the banks might be near an end

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Why you should take profits on this once-hot sector

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Banks aren't stressed out. Well, 29 out of 30 banks, at least.

Every year the Federal Reserve Bank conducts a stress test of the country's largest banks to see how they would handle a hypothetical economic crisis. When tested capital requirements, 29 out of 30 banks were able to pass with only Zions Bancorporation failing. Zions's 3.6% capital ratio didn't meet the 5% standard, though it plans on resubmitting its capital plan to the Fed.

Meanwhile, the banking sector continues its post-financial crisis rebound. Over the past five years, the Financial Select Sector SPDR (the XLF) is up 145%, and is close where it was just before the collapse of Lehman Brothers in 2008.

(Read: U.S. Fed corrects stress test results, says most changes minor)

CNBC contributor Gina Sanchez, founder of Chantico Global, says that not all banks are created equal despite passing the Fed's stress test and despite highs in the XLF.

"I don't think this is a 'rising tide lifts all boats' kind of rally," says Sanchez. "Investors have to get specific about which bank they're going into."

Some banks consistently find themselves lending to borrowers who may not be able to pay loans back, notes Sanchez. "This is an interesting time and a time when you want to get stock-specific in the banking sector."

On the technicals, a rally may continue, notes CNBC contributor Andrew Busch, editor and publisher of The Busch Update. However it may be close to a peak.

(Read: Fed says 29 out of 30 banks meet stress test capital requirements)

Busch sees the XLF trading in a $3-wide upward sloping trend channel over the last year.

"Since putting in a low at $17.75, this thing has traded so beautifully in an uptrend channel," says Busch of the XLF. "It's hit the downside four times and it's hit the upside twice. It's wonderful."

Busch also uses the 10-day and 30-day moving averages in a moving average crossover strategy. When the 10-day is above the 30-day moving average – as it is currently – the strategy says to buy the ETF.

"It's a little choppy but it's given you a nice trend upward as well," says Busch.

However, Busch believes investors should keep an eye on both the trend channel and the moving averages.
"We're getting to the top end of the channel," says Busch.  So, you don't want to add to any positions at this time. And, you really want to watch this thing to see if it the 10-day begins to break down below the 30-day and then you want to sell it."

To see the full discussion on the banking sector and the XLF with Sanchez on the fundamentals and Busch on the technicals, watch the video above.

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