After enjoying a surge of relative strength over the last few weeks, financial stocks are rolling over into their first bout of weakness since early October.
The main concern, it seems, stems from worries over net interest margins. Expectations are high that the Federal Reserve will raise interest rates for the first time since 2006 next month.
According to the conventional wisdom, this will be good for banks since it will raise long-term rates (in anticipation of an additional rate hike) and boost the difference between lending and deposit rates.
But with inflation below target, consumer confidence softening and factory activity cooling a little, the worry is that the Fed could be headed into a policy mistake. If so, a rate hike could actually lower long-term rates by lifting deflation/slowdown fears. Also weighing is chatter that new regulatory requirement will require additional capital reserves totaling $120 billion.
With that in mind, here are five big bank stocks to sell, or for the more aggressive, to consider as short-side or put option candidates.
Bank Stocks to Sell: Bank of America (BAC)
Bank of America (BAC) shares traded below their 20-day moving average on Tuesday for the first time since the middle of October.
The company reported better-than-expected third-quarter earnings on in line revenues. Net interest income dropped 7% over last year on lower consumer loan balances and lower yields.
I have recommended the $17.50 and $17 December BAC puts to my Edge Pro subscribers.
Bank Stocks to Sell: Goldman Sachs (GS)
Goldman Sachs (GS) has succumbed to fresh selling pressure falling back below its 50-day moving average and is moving toward critical support at its 50-day moving average.
The stochastic indicator is set to flash a sell signal for the first time since July.
Analysts at UBS lowered their price target to $180 last month on weak fixed income, currency and commodities trading revenue.
Bank Stocks to Sell: Citigroup (C)
Citigroup (C) is once again testing support at its 200-day moving average after peaking early this month.
The $55-$56 level associated with gapped price movements over the summer is offering heavy resistance. On Oct. 15, Citigroup reported mixed results with revenues missing expectations and falling 5% from last year.
Bank Stocks to Sell: Wells Fargo (WFC)
For the first time since its late-September/early-October uptrend started, Wells Fargo (WFC) is seeing its shares drop below its 20-day moving average after stalling near the $56 level — a level that was associated with the three-month topping pattern set between June and August.
While the company reported slightly better-than-expected earnings on Oct. 14, mortgage originations fell from the previous quarter.
Bank Stocks to Sell: JPMorgan Chase (JPM)
Shares of JPMorgan Chase (JPM) have tested back below their 20-day moving average in what’s a possible violation of a two-month uptrend.
Resistance has been hit near the $68-a-share level associated with the June-August topping pattern.
JPMorgan Chase reported weaker-than-expected revenues on Oct. 13 on lower net interest income and lower investment securities balances.