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Financial stock pair: Wells Fargo v Boston Properties

November 26, 2012

26 November

I have shown some stock ideas with financials on the long side recently and here is another one. This is an example of a Bollinger Band contraction, with the ratio of Wells Fargo (WFC) v Boston Properties (BXP) having the tightest 40 week Bollinger Bands since December 2003.

Wfcbxp_weekly_rtt_261112

The signal, as defined in the methods section is a break above the upper band along with an expansion of the band width on an end of week basis.

The 40 week moving average is trending up and I am only interested in trading a break of the bands in that direction. The stop loss is below the 16 October low on the daily ratio chart, at 0.3 on the ratio, 6.9% below the level of Friday’s close.

As with other Bollinger Band breakout trades, if this doesn’t follow through fairly quickly, it could be cut before the stop is reached. The best examples of these follow through quickly.

This is a trade that would benefit from rising interest rates, with a bank receiving higher interest on its loans and a real estate company paying out more interest.

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