by Anthony Mirhaydari | May 1, 2014 2:14 pm
The market has moved into an odd dichotomy.
On one hand, the mega-cap stocks in the Dow Jones Industrial Average (where the average market capitalization is $126 billion) just pushed to a new all-time closing high.
But the rest of the market remains in the doldrums.
Consider that the Russell 2000 small caps (where the average market capitalization is $594 million) remains roughly 6% off of its all-time high. Moreover, the index continues to repeatedly test its 200-day moving average to the downside (five times over the past month), a critical support level that it hasn’t closed below since 2012.
Or consider that, as the Dow Jones Industrial Average pushes to a new all-time high today, just 67% of the stocks in the S&P 500 are in uptrends vs. nearly 84% when the Dow last closed at a new all-time high at the end of 2013. Or that the last time the Dow hit an intra-day high earlier this month the percentage of NYSE stocks above their 50-day moving average was around 77% vs. just 59% now.
To my eyes, it looks like a growing swath of the markets — despite the Dow’s push higher — is coming under increasingly aggressive selling pressure. It started with big tech and biotech in March, but is now spreading to other areas, including financial stocks. The Financial SPDR (XLF) is some 3% below its high.
Here is a closer look at five bank stocks that are coming under pressure.
Click to EnlargeAfter reporting weaker-than-expected earnings back on April 16, due largely to legal expenses related to housing bubble no-nos, Bank of America (BAC) is coming under new attack from the sellers this week after it was revealed that the bank’s capital plan to regulators was full of errors. Specifically, there were errors in the valuation of bond securities absorbed during the acquisition of Merrill Lynch back in 2009.
The end result is that BAC’s tier-one capital ratio was reduced to 11.9%, down 21 basis points. That may not seem like much, but the Federal Reserve is forcing the company to suspend its previously announced capital return actions, including a $4 billion stock buyback and a planned increased to its dividend.
As a result, BAC stock has fallen below its 200-day moving average for the first time since 2012 — with more downside extension likely.
Click to EnlargeLike BAC stock, Fifth Third Bancorp (FITB) suffered a steep pullback in April as a massive drop off in mortgage origination volumes and reduced ability to tap into loan loss reserves to pad quarterly earnings sent investors fleeing.
FITB announced weaker-than-expected Q1 earnings on April 17, driven by a drop in net interest margin and a -13% year-over-year decline in mortgage banking revenue. FITB stock is only down 3% so far this year, but has fallen more than 10% since early April.
Click to EnlargeLike FITB, Huntington Bancshares (HBAN) stock has fallen to test support at its 200-day moving average amid a general sense that the industry is coming under pressure. While the company reported earnings on April 16 that were in line with expectations, its return-on-equity metric dropped to 9.9% vs. 10.7% last year.
The selling pressure in HBAN has been intense, with tons of negative volume throughout April. A violation of the 200-day average would end an uptrend streak going back to late 2012.
Click to EnlargeValley National Bancorp (VLY), which operates banks throughout the New York City region, is weaker and more volatile than many of the other regional bank stocks. That makes it a prime short-side candidate for investors looking to profit from the pressure coming down on the financials.
Although VLY reported better-than-expected earnings on April 24, it missed on the top-line results. The stock has fallen dramatically, down about 9% since reporting earnings.
Click to EnlargeBB&T (BBT), which operates nearly 2,000 branches throughout the southeast and mid-Atlantic seaboard, has moved back down towards its 200-day moving average — a level it tested in October and again in November. The level hasn’t been broken since last April.
The company reported weaker-than-expected earnings on April 17 as well as a 24 basis point drop in net interest margins.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters, as well as Mirhaydari Capital Management, a registered investment advisory firm.
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