The financials and regional banks have taken a hit from a combination of profit taking and a potential shift in the interest rate outlook. Yesterday’s rally was led by the financials, which are normally good for the broader indices, but it also took many of these companies to critical tests that may determine the course of the market for the next few weeks.
Today’s three big stock charts looks at three banking stocks that are running into technical resistance that could put a lid on their rally: Bank of America Corp (NYSE:BAC), Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM).
Bank of America Corp (BAC)
Bank of America shares participated in the rally yesterday, taking the shares to their 50-day moving average where they’re finding resistance. As of Thursday, less than 10% of the SPDR Financial ETF constituents were trading above their respective 50-day moving averages, so this is a theme among the group.
The current tests of this trendline are critical as BAC traders have been taking their lead from its moves above and below. For instance, we saw a surge of selling activity last week when Bank of America shares broke the 50-day. Before the breakdown, there was a successful hold of the trendline in February that saw an increase in BAC buying volume.
Given the importance of the 50-day, a rejection will bring sellers out in force and cause an almost immediate test of Bank of America’s 100-day, which is only 4% below current levels.
Historically, a re-test of a trendline like this in a short period of time (the 100-day was tested on Monday) is less likely to see support. In this case, a break below the 100-day will target a price of $20 over the intermediate-term outlook for BAC.
Goldman Sachs Group Inc (GS)
We hit the charts for Goldman Sachs recently as we saw reason for technical concern as the shares were aggressively breaking through their 50-day trendline. Now, GS is trading below the 100-day and things aren’t looking any better for the outlook.
The stock’s strength this week was triggered by a dramatic oversold reading from its RSI. In fact, the RSI had reached its lowest levels in more than a year. This aspect of the recent rally indicates that the buying seen over the last few days is likely the result of what is referred to as a “dead cat bounce”. In other words, we’re likely to see Goldman Sachs shares reverse themselves again.
From a longer-term perspective, GS is working off an overbought reading from the monthly RSI. That’s right, the stock is overbought on a long-term basis and oversold on the short-term.
Goldman Sachs stock’s small rally has brought it back within its Bollinger Bands, suggesting that the more volatile moves have likely been made. That said, the 50-day moving average is now trending lower, which indicates a likelihood that the trend will favor the downside as negative momentum builds.
For now, GS should be considered “neutral” to “sell” based on the technicals, as the giant is now lagging its peer group and has little technical support to lean on until the shares reach $200.
JPMorgan Chase & Co. (JPM)
Another bank stock hitting its own technical test is JPMorgan Chase. Along with Bank of America, JPM shares are wrestling with their 50-day moving average and will likely take their directions lead from the break or rejection of this trendline.
JP Morgan stock has spent most of this week bound by the trendline, while volume has been declining. This suggests that the technical traders are taking a wait-and-see approach and keeping the powder dry.
Just overhead of the 50-day is the shorter-running 20-day moving average. Should this combine with the 50-day over the next few trading sessions it would make for double-barreled resistance at $88, which may be too much for JPM stock to overcome.
The trigger for a volatility trade selloff stands at $86.16, so those holding JP Morgan stock or wanting to short it should set alerts at that price.
As for the longer-term, our technical models are setting the next line of support at $80 based on round-numbered trading and JPM’s chart activity after the initial post-election rally in November.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
