The market’s recent rally was driven heavily by the financial sector as the large banks and insurance companies bounced from their recent lows. Companies like Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM) and Zions Bancorp (NASDAQ:ZION) have all surged from near oversold levels last week in response to the headline risk of the hurricanes having passed giving relief to traders.
Today’s three big stock charts takes a look at these three companies and their current patterns as all three appear to be setup for another move lower unless some technical barriers are taken out quickly.
Bank of America Corp (BAC)
Bank of America, along with most other bank stocks, have traded in a wide range as traders concerned themselves with the hazy outlook on interest rates. In BAC’s case, the stock has struggled to avoid patterns that project a bearish trading outlook, but once again the shares are flashing signs of risky trading over the next four to six weeks.
- Bank of America has been one of the more volatile names in the banking sector as the stock has traded, on average, with actual volatility that is about 25% higher than other large banks. This puts the stock into the hands of the technical traders.
- Yesterday’s rally brought BAC stock to its top Bollinger Band, where it is likely to find immediate resistance. A similar situation happened in Early August when the shares broke above this band on an intraday basis, but never closed above it. Ultimately, the failure to breach into a Volatility Rally served as a bearish signal and forced share prices 8% lower over the following weeks.
- In addition to the risk of a Volatility Rally kicking-off on the stock, the 50-day moving average for Bank of America stock is transitioning into a bearish trend. In short, this means that a move below a trigger price of $24 will spark a sell-off that is likely to pursue prices in BAC as low as $22 in the short-term.
JPMorgan Chase & Co. (JPM)
Another stock that led the financials higher through July is JPMorgan. JPM stock surged 15% as investors and traders were migrating cash from technology stocks back into financials; however, the rally quickly drew to a close as the financial sector earnings didn’t live up to analyst expectations.
Now, JPMorgan shares are facing a transition into an intermediate-term bearish outlook with overhead pressure leaning on the stock and threatening another 5% decline over the next few weeks.
- Like many of the larger banks, JPM has run into some fundamental weakness over the last quarter as a number of their business lines have fallen short on performance. This fundamental weakness has kept the stock in a long-term trading range.
- After rallying strong through June and July, JPMorgan stock has now fallen back into a pattern of lower highs and lower lows since its highs in August. This pattern is consistent with technical traders taking profits on strength and it typically chips away at the longer-term strength of a stock.
- Overhead resistance is in place at $92 in the form of JPM’s 50-day moving average, which is rolling over. This transition to a lower trajectory for this moving average indicates a shift to a bearish intermediate-term outlook for JPMorgan stock.
- Current models target a move to the $84-level unless support at $87.50 from the stocks’ 200-day moving average should hold.
Zions Bancorp (ZION)
This regional bank had been one of the stronger performers in the group as some seriously negative sentiment helped Zions Bancorp climb the Wall of Worry to higher prices from June through August.
That rally has waned of late though as ZION stock has run into chart resistance that is tuning the company from a bullish outlook to bearish in what is likely to be a key reversal at-or-near current prices.
- Since topping in August, Zion Bancorp shares have been on a trend lower that is growing in strength. The current Chande Trend Meter readings for the stock indicate that Zion Bancorp should continue to see weakness as it breaks back into the red on a year-to-date basis.
- Shares were given a reprieve from breaking below their 200-day moving average a week when the stock hit an oversold reading of its RSI. This allowed for a Dead Cat Bounce rally that has quickly been pressured by ZION stock’s 20-day moving average. The halt at this short-term trendline indicates that traders are getting out of the stock on any strength.
- Overhead, the 50-day moving average for Zion Bacorp is rolling over, indicating that the stock is slipping back into an intermediate bear market trend. The last similar move was earlier this year ahead of a move from $43 to $40 in a short period of time.
- Making matters worse, ZION appears ready to break through its 200-day moving average. This will signal a move into a longer period of selling pressure as technical traders will increase selling pressure on the stock.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.