The stock market added to its recent gains on Monday and while the Select Sector SPDR Financials (XLF) was only up 0.73%, many of the banks like Bank of America (BAC) and Citigroup Inc. (C) were up close to 2% on good volume. These gains pale in comparison to the 20% jump in the stock of the National Bank of Greece ADS (NBG).
The market internals were positive Monday and the A/D lines on the S&P 500, Dow Industrials, Nasdag 100, and Russell 2000 are now in clear up trends. The NYSE Advance/Decline is still lagging slightly.
Alcoa (AA) led the start of earnings season reporting a larger loss than expected, but the focus this week will be more on the financial sector as banks have been leading the market higher since the late June lows. The SPDR KBW Bank ETF (KBE) is up over 9% in just the past nine days versus a 4% gain in the Spyder Trust (SPY).
The regional banks have done even better as the SPDR KBW Regional Bank ETF (KRE) is up almost 11.5% during the same period. On June 26, the relative performance analysis indicated that it was one of the 3 Trend-Bucking Picks.
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Chart Analysis: The weekly chart of the DJ US Banks Index (DJUSBK) shows a well-defined upward trading channel, lines a and b, that goes back to the summer of 2012.
- The support that goes back to the November and April lows (line b) was tested in late June before it reversed to the upside.
- There is next resistance at 277.40 with the upper resistance, line a, in the 295-300 area.
- The relative performance bottomed out last September as it retested its support, line b, in April.
- The RS broke through resistance at line c in late May signaling it was a market-leading sector.
- The volume data only goes back to the start of 2013, but the OBV appears to have held support (line e) and moved back above its WMA
- There is initial support at 266.58 and the June low at 255.27 should hold on any correction.
JPMorgan Chase & Co. (JPM) tested its rising 20-week EMA at June's low of $51.51 before closing the week at $52.79, which was a bullish sign. They report earnings before the opening on Friday, July 12.
- JPM started the quarter above its pivot at $51.48, which was a sign of strength.
- In Monday's session, JPM hit a high of $54.91 with the early June high at $55.91 when the weekly starc+ band was tested.
- The relative performance is close to making new highs as it shows a solid uptrend, line g.
- The RS line is well above its rising WMA.
- The weekly on-balance volume (OBV) broke out of its base formation, line h, in early January and retested its WMA (see arrow) two weeks ago.
- There is initial support now at $53.15-$53.60 and then at $52.75 with key support at the June lows
Wells Fargo & Company (WFC) retested the weekly breakout level, line a, at $39.40 in June. They also report earnings before the opening on Friday, July 12.
- The quarterly R1 is at $43.48 with the weekly starc+ band at $43.76.
- The relative performance moved through its strong resistance, line b, at the end of May.
- The RS line is in a strong uptrend and well above its WMA.
- The weekly OBV broke through its resistance (line c) two weeks ahead of the RS line.
- The OBV shows a pattern of higher highs and is well above its WMA.
- The daily OBV (not shown) is above its WMA so the OBV multiple time frame analysis is also pointing higher.
- The first zone of support is in the $41.70-$40.70 area with the quarterly pivot at $39.84.
- The June 24 low of $39.40 should hold on any correction.
Commerce Bancshares Inc. (CBSH) is a $4.17 billion regional Southwest bank that has a current yield of 2.0%. It is scheduled to report earnings on Thursday and currently yields 2.0%.
- The weekly chart shows a breakout from a major trading range, lines e and f, in the middle of May.
- The close last week was quite close to the quarterly R1 at $46.57 and the weekly starc+ band at $46.74.
- The upside targets from the trading range are in the $50-$52 area.
- The relative performance formed a base in late 2012 and early 2013 before breaking its downtrend, line g.
- The OBV also confirmed the price action by overcoming resistance at line h.
- The OBV shows a long-term uptrend, line i, and the daily OBV is confirming the price action.
- There is first support at $45.20 to $44.60 with the quarterly pivot at $42.51.
What it Means: The technical action of all of these banks stocks is positive and the weekly relative performance analysis suggests they are likely to be market leaders for the rest of the year.
New positions need to be established on enough of a pullback so that a stop under the June lows can be used. Commerce Bancshares Inc. (CBSH) is quite overextended, but I have no new recommendation for now.
How to Profit: For JPMorgan Chase & Co. (JPM), go 50% long at $53.66 and 50% long at $52.88, with a stop at $50.73 (risk of approx. 4.8%).
For Wells Fargo & Company (WFC), go 50% long at $41.68 and 50% long at $41.14, with a stop at $39.14 (risk of approx. 5.5%).
Portfolio Update: As previously recommended, should be 50% long MB Financial Inc. (MBFI) at $25.86. Sell ½ at 28.66 or better and raise stop on the remaining position to $26.18.
Here are the changes in the other orders from the June 26 column.
For SPDR Regional Banking ETF (KRE), go 50% long at $34.28 and 50% at $33.36, with a stop at $32.03 (risk of 5.3%).
For M&T Bank Corp. (MTB), the buy level was missed, and I would cancel the order for now.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.