The financial sector has been moving sideways and lagging the broad markets since August of last year. The break above resistance in March lasted six weeks before retreating back to the previous trading range. The hope leading up to the beginning of earnings was a breakout quarter for the sector. We have witnessed earnings from JP Morgan, Bank of America and Citigroup the last two days and the results were better than expected relative to earnings. Revenue was in line or slightly below expectations. Write offs from loans declined better than expected. But, the stocks have actually declined in value? Where is the problem?
The comparison to year ago numbers. Revenue and earnings declined for the quarter in comparison. Since I am not a pure fundamentalist relative to analyzing stocks, give me a break, is my response. Yes, this is a tough market relative to earnings and increased pressure being placed on banks, but the numbers were solid and the outlook is good. No, it isn’t great and we are likely to see expenses rise relative to the regulatory bill, but the fact all three institutions are dealing with consumer loan issues faster than expected is a positive. My view is watch the sector as we move forward, the current negative views could change.
The following are charts of the three companies reporting. I added KBE, SPDRs Bank ETF to look at the index of bank stocks as well. The view is technical and balances the negative fundamental outlook with some potential opportunities. Put them on your watch list to see if they pan out.
JP Morgan shows an attempted breakout, but the selling today could change that. Watch and see what develops near term.
Bank of America is still attempting to break higher – watch to see if it can overcome the negative reaction to earnings short term.
Citigroup broke above resistance and is testing support of the break out point. Watch to see it the rally can sustain itself after a pullback?
KBE is the banking ETF and shows a break higher from consolidation, but is in the process of a reversal or test on the reaction to earnings. Watch and play accordingly.