Why You Shouldn't Buy Or Sell Financials Based On Interest Rates

JC Parets is a weekly guest on #PreMarket Prep, a daily trading idea radio show hosted by Joel Elconin and Dennis Dick.

Eagle Bay Capital Founder JC Parets warned that traders should not buy or sell financial stocks based on interest rates.

"I have done the math," Parets said, noting that it may make for a nice headline, but "in reality, there's not really anything there." To buy or sell based on interest rates would be "foolish."

Instead, traders should analyze financials using underlying technical and fundamentals. Parets said that his upside targets have been hit in Select Sector Financial Slct Str SPDR Fd (NYSE:XLF) when the ETF hit the $25.30 to $25.40 range. That level represents the 161 percent extension of last year's September and October decline.

Parets said that it is not a coincidence that when the price hit that level, it "rolled over." According to Parets, that's confirmation that the market believes it's a very important level.

Parets also cautioned against shorting financials.

"Not that I would be shorting any of them, but when all your upside targets have been hit, there's nothing to do," Parets reminded listeners.

However, if prices start to fall below the 2014 highs, it could indicate a "failed breakout," giving traders an opportunity to sell.