4 Blue-Chip Bank Stocks: Which Make the Grade?

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As the quintessential Wall Street fat cats, blue-chip bank stocks have enjoyed unprecedented support since the global financial crisis of 2008. Buoyed by the U.S. Federal Reserve’s role as the lender of last resort, the Fed allocated credit directly to several firms via broad-based lending programs.

XLF, SPY, stock
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Source: Source: JYE Financial, unless otherwise indicated

The result from the Fed’s guiding hands are evident in the markets. Since the beginning of 2010, the big bank stocks’ exchange-traded fund, Financial Select Sector SPDR ETF (XLF), has largely tracked the ebb and flow of the benchmark ETF, SPDR S&P 500 ETF (SPY).

Since 2012, however, upside momentum for the XLF has declined substantially. In the 17 months since January 2014, the monthly average performance for the bank stocks fund is 0.9%, a far cry from the 2.4% average achieved between 2012 and 2013.

The air is leaking out from the bank stocks; that much is mathematically obvious. But which one of these blue-chip bankers actually make the grade?

4 Blue-Chip Bank Stocks: Bank of America (BOA)

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Source: Source: JYE Financial, unless otherwise indicated

Because of this, BAC could also be viewed as a safe-haven opportunity while a huge chunk of the S&P 500 falters under what many consider a monetarily hawkish inevitability.

In the markets, however, the prognosis for BAC stock is quite mixed. On one hand, investors can advocate for BAC on the basis of strong statistical trends. Since April, BAC is up 12%, largely on the back of impressive performances in the past two weeks. Such “quarterly returns” on average produce an 80% likelihood that BAC will move higher over the next 90 days.

But those odds have been generated mostly when BAC is on the run. Currently, however, Bank of America stock is stymied by a consolidation range, where the bulls have been unable to beat upside resistance at $18. Although bullish technical patterns — such as flags or pennants — feature a consolidation period prior to a breakout, this particular trading range is quite long in the tooth, active since April of last year.

Historical odds suggest that BAC will convincingly make a positive breakthrough but should the bulls show signs of weakness at the $18 threshold, it could turn out to be a dangerous gamble.

4 Blue-Chip Bank Stocks: Citigroup (C)

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Source: Source: JYE Financial, unless otherwise indicated

The fundamental headwinds of crude oil volatility, sanctions against Russia, and cutthroat competition has resulted in Citigroup being forced to make adjustments in its business plan.

For now, Citigroup stock investors seem unfazed as the big bank presses on with its commodity trading expansion, but how long will this ride last?

Similar to BAC, Citigroup stock has to contend with two competing perspectives. Since April, Citigroup stock is up 9%, again largely due to recent bullish trades. This yields a 65% probability that by mid-September, shares will have moved north from its current market price.

In contrast, though, is the technical trend. Since the late summer of 2013, Citigroup stock has been forming a dreaded broadening wedge formation, or what is sometimes referred to as a megaphone pattern. Essentially, the broadening wedge is a “reverse-pennant.” Rather than a stock’s price range being forced into a focal point prior to an explosive breakout, the price range instead expands outward.

Of course, this produces the necessary volatility for profitable trades, but it also increases the risk; hence, Citigroup stock has mathematically lower odds than BAC.

Assets caught within a broadening wedge are notoriously dangerous and there doesn’t seem to be much benefit in riding Citigroup stock when there are better options in the markets.

4 Blue-Chip Bank Stocks: J.P. Morgan Chase & Co. (JPM)

JPM stock, chart
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Source: Source: JYE Financial, unless otherwise indicated

JPM famously made headlines in the latter half of 2013 when management announced that it was ready to pay a $13 billion fine to the U.S. government for alleged improprieties in selling mortgage-backed securities. A year later, JPM, along with Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS), were under investigation for suspected commodity markets manipulation, specifically involving aluminum spot-prices.

This of course only adds fuel to the fire that JPM is actively managing the silver market. With all this manipulating, JPM’s stock surely must be a profitable investment?

The facts say yes, actually. JPM has amassed 7.5% of market value since April with consistently strong trading sessions, yielding a probability of 60% that shares will be profitable against the current market price over the next three months.

This forecast is supported by the technical argument, which has witnessed several monthly trades that have convincingly beaten upper resistance. Additionally, JPM stock has clearly beaten the bearish implications of what looked to be a broadening wedge, which was very much in play between November of 2013 and March of 2015. This then suggests that — at the very least — JPM will consolidate at a loftier price threshold before moving higher still.

Although it doesn’t necessarily have the best moral reputation, both technical and statistical indicators point towards a continuation of bullishness for JPM stock.

4 Blue-Chip Bank Stocks: Wells Fargo (WFC)

4 Blue-Chip Bank Stocks:
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Source: Source: JYE Financial, unless otherwise indicated

Failing to find any substantive financial wrongdoing, evangelist Franklin Graham — the son of televangelist Billy Graham — made headlines when he accused Wells Fargo of being too gay. You couldn’t make this stuff up if you tried.

Despite WFC stock being the one of the slowest moving of the four stocks mentioned in this article — up 4.5% year-to-date — its share price gained nearly 2% over the past 90 days. Similar “quarterly runs” in the past have yielded a 70% likelihood that WFC will move up against its current market price by mid-September.

Technically, investors can reference the old market aphorism: the trend is your friend. Since the beginning of 2013, WFC shares have moved up in a step-wise pattern, rallying for several months before a short consolidation period resulting in a continuation of bullishness. So far, there’s no indication of upside resistance that clouds the momentum of BAC and Citigroup stock, suggesting that investors can buy into WFC’s strength with confidence.

While WFC shares apparently may not garner too many friends in church, it’s a refuge from the vast wilderness of big bank stocks.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2015/06/4-blue-chip-bank-stocks-make-grade-bac-c-jpm-wfc/.

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