5 Big Financial Stocks That Just Got Leveled (And What to Do Next)

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financial stocks - 5 Big Financial Stocks That Just Got Leveled (And What to Do Next)

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The run in financial stocks is over for the moment.

Large-cap stocks fell more than 1% in intraday trading on Tuesday as Wall Street suddenly worries about the specter of political gridlock over healthcare reform in Washington delaying President Donald Trump’s tax reform/deregulation plans. The volatility breakout is way, way overdue, with a 1% loss for the S&P 500 not seen since October.

Financial stocks — which led the way higher out of the election and outperformed the overall stock market by more than 10% — are now leading the way down.

That sound you hear is air rushing out of the post-election sentiment bubble that was all based on valuation expansion on hopes of lower corporate taxes, a repatriation holiday to bring back foreign cash holdings, and the promise of stimulus spending on infrastructure and military hardware.

The facts on the ground are much different. Whole economy measures of corporate profits have stalled. With “hard” data points like retail sales soft, the Atlanta Fed’s GDPNow estimate of Q1 growth is a pitiful 0.9%. And the Federal Reserve is aggressively hiking interest rates.

With sentiment and investor positioning off-the-charts extreme, the downtrend likely has a ways to run. Here are five financial stocks that should be sold, hedged against or shorted for profits.

Financial Stocks That Just Got Leveled: Bank of America (BAC)

Financial Stocks That Just Got Leveled: Bank of America (BAC)Bank of America Corp (NYSE:BAC) reported mixed results on Jan. 13, with earnings of 40 cents per share beating expectations by 2 cents but revenues, up 2.1% from last year, missing estimates at $20 billion. Still, shares managed to find their way higher all the way through mid-march.

Now, however, shares are slicing below their 50-day moving average, returning to levels last seen in early February in what’s shaping up to be the worst intraday selloff since last summer.

This marks a likely end to a powerful uptrend that saw shares more than double off of their February 2016 low. If support around $22 doesn’t hold, watch for a drop all the way to the 200-day moving average — a nearly 20% drop from here.

The company will next report results on April 18 before the bell. Analysts are looking for earnings of 35 cents per share on revenues of $21.6 billion.

Financial Stocks That Just Got Leveled: JPMorgan Chase (JPM)

Financial Stocks That Just Got Leveled: JPMorgan Chase (JPM)JPMorgan Chase & Co. (NYSE:JPM), a bank with a “fortress” balance sheet according to its CEO Jamie Dimon, is threatening to drop below its 50-day moving average for the first time since last summer. Since then, the stock has gained more than 50% to push to new record highs.

A pullback has been long overdue, and now we’re getting it as bulls book profits.

Fundamentally, JPMorgan is fine, though the company didn’t really impress during its Q4 earnings report. Management reported better-than-expected results on Jan. 13, the fifth straight quarter of topping expectations. Revenue grew a modest 2%, however, with results largely being driven by cost control.

Traders could consider going long using options if they believe this is a short dip, but I think JPM has more room to dive.

JPMorgan will next report results on April 13. Analysts are looking for earnings of $1.53 per share on revenues of $24.4 billion.

Financial Stocks That Just Got Leveled: Citigroup (C)

Financial Stocks That Just Got Leveled: Citigroup (C)Citigroup Inc (NYSE:C) is dropping away from double-top resistance near the $62-a-share level, falling below its 50-day moving average with possible support near $56 from the January/February lows.

I have recommended the April $58 puts to Edge Pro subscribers on anticipation of, at the very least, a test of the low near $56 which would be worth nearly a double from here.

Citigroup reported mixed results back on Jan. 18, with earnings of $1.14 per share 2 cents ahead of estimates, but revenues down 8% from last year to miss expectations. It’s very likely that investors will take a long, hard second look at these results as financial stocks readjust.

Citigroup will next report results on April 13 before the bell. Analysts are looking for earnings of $1.28 per share on revenues of $17.9 billion.

Financial Stocks That Just Got Leveled: Goldman Sachs (GS)

Financial Stocks That Just Got Leveled: Goldman Sachs (GS)Goldman Sachs Group Inc (NYSE:GS) shares have dropped below their 50-day moving average and broken below their lower Bollinger Band on a scale not seen since August 2015.

If you remember back that far, that was when fears over bond/loan defaults by high-cost U.S. shale oil producers — during the early stages of the energy price meltdown — were at their most acute.

Goldman’s downturn looks mostly short-term in nature, as its rally is at least founded on strong operational results. Back on Jan. 18, the company reported better-than-expected top- and bottom-line results on a 12.3% jump in revenues from the year before.

GS’ next report will come the morning of April 18. Analysts are looking for earnings of $4.99 per share on revenues of $8.7 billion.

Financial Stocks That Just Got Leveled: Morgan Stanley (MS)

Financial Stocks That Just Got Leveled: Morgan Stanley (MS)

Lastly, Morgan Stanley (NYSE:MS) shares have collapsed below their 50-day moving average and is on track for its largest one-day loss since June 2016. The last big breakdown below its 50-day moving average?

You guessed it — August 2015.

If the December-February trading range support doesn’t hold here, the pre-election lows will be put into play.

Like Goldman, the rise in MS stock has been backed by better-than-expected results back in January on strength in institutional sales and trading. Earnings doubled from the year before on a 17% increase in revenue from last year to $9 billion.

Morgan Stanley will next report results on April 19 before the bell. Analysts are looking for earnings of 89 cents per share on revenues of $9.3 billion.

Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/5-big-financial-stocks-leveled/.

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