Believe It: Big Bank ETF in Rally Mode

The financial services sector has gotten something of a bad reputation this year, but as measured by the Financial Select Sector SPDR (NYSEArca: XLF), the group has not been as dreadful as some investors have been led to believe.

XLF, the largest U.S. sector ETF, has outpaced three of the nine sector SPDRs. More importantly, XLF is up 4.4% just this month and raced to a new 52-week high on Thursday. Actually, let’s not cheat XLF. Thursday’s close at $23.20 was the ETF’s highest since May 2008.

XLF and rival financial services ETFs are not strangers to headline risk, so it can be considered impressive that the fund made a new high on the same day the federal government ordered Bank of America (NYSE: BAC) to pay $16.7 billion related to mortgage bond sales that helped inflate the housing bubble that stoked the global financial crisis.

Still, BofA and Citigroup (NYSE: C), XLF’s fourth- and fifth-largest holdings, respectively, hit new 52-week highs Thursday. Those stocks combine for over 11% of the ETF’s weight. Although the $16.7 billion penalty levied against BofA is the largest against a single entity in U.S. history, headlines for big banks and some of the relevant ETFs have been kind this month.

Earlier this month, BofA helped lift XLF after the Federal Reserve signed off on the bank raising its quarterly dividend to five cents a share from a penny. [BofA Boosts Bank ETFs]

Last week, Warren Buffett’s Berkshire Hathaway (NYSE: BRK-A) hit $200,000 a share for the first time. Berkshire’s class B shares are XLF’s second-largest holding at 8.6% of the ETF’s weight. [Berkshire Blast a Boon for These ETFs]

“We might be seeing a healthy move or rotation taking place in the banking sector,” according to Captain John Charts, which noted XLF is bumping up against a key resistance area. “We would like to see an upside breakout here to confirm Citi and Bank of America breakouts before getting too bullish.”