U.S. equities opened hard to the downside Tuesday due to turmoil in Italy, resulting in the biggest blowout of volatility in months as the political situation in the eurozone results in big-time problems in the sovereign bond market.
A euro-skeptic populist government looks inevitable in Italy despite machinations by the establishment. All of this is bringing back memories of 2011 — when the eurozone debt crisis first appeared.
Italian stocks have dropped more than 14% over the last two weeks while its 10-year bond yield has increased to 3.2% — the highest since May 2014.
Separately, Spain is headed for trouble too with Prime Minister Mariano Rajoy’s leadership being put to the test with a confidence vote on Friday.
While U.S. stocks plummeted across the board, the pain was more acutely felt in the big banks with exposure to the eurozone markets. Today, these bank stocks are bouncing back but that’s yesterday’s action shows that caution should be exercised in these six names:
Turmoil in Italy: JPMorgan (JPM)
JPMorgan Chase (NYSE:JPM) shares dropped to test critical year-to-date support near $105 — which is also matching up with support from its 200-day moving average — before bouncing back to 107.54 Wednesday morning.
What to watch for: Further fears could put a breakdown below $105 in play, which would put the November lows near $95 in sight. That would be a decline of more than 10% from current levels.
When to watch for it: The company will next report results on July 13 before the bell. Analysts are looking for earnings of $2.24 per share on revenues of $27.3 billion. When the company last reported on April 13, earnings of $2.37 per share beat estimates by eight cents on a 12% rise in revenues.
Turmoil in Italy: Wells Fargo (WFC)
Wells Fargo (NYSE:WFC) shares reversed out of a multi-week support range Tuesday, losing its 20-day moving average and putting its 50-day average to the test.
What to watch for: Today, WFC is up 1.5% from Tuesday’s Italy turmoil, but be patient in the sector before putting your money into WFC. Wells Fargo shares are already down nearly 20% from their early February high as the company has been at the center of multiple scandals and was given the reprimand by regulators to halt growth until management deficiencies are fixed.
When to watch for it: Wells Fargo will next report results on July 13 before the bell. Analysts are looking for earnings of $1.12 per share on revenues of $21.6 billion. When the company last reported on April 13, earnings of $1.12 per share beat estimates by five cents on a 1.4% decline in revenues.
Turmoil in Italy: Bank of America (BAC)
Bank of America Corp (NYSE:BAC) shares threatened to fall through their 200-day moving average for the first time since September, with shares already down more than 12% from the highs set in March.
What to watch for: Investors are bidding BofA up by 1.2% in early trading Wednesday, but BAC shareholders aren’t in the clear. A breakdown below BAC’s 200-day moving average would put an end to a six-month trading range and kick off what could be the first medium-term downtrend shareholders have been forced to suffer since the end of 2015.
When to watch for it: Bank of America will next report on July 16 before the bell. Analysts are looking for earnings of 64 cents per share on revenues of $23.1 billion. When the company last reported on April 16, earnings of 62 cents per share beat estimates by three cents on a 4.1% rise in revenues.
Turmoil in Italy: Citigroup (C)
Citigroup Inc (NYSE:C) shares dropped hard below support from its March-May lows on Tuesday in response to euro worries.
What to watch for: Today, C stock is rising 1.6% but the risks are plain: Citi shares could soon violate a large head-and-shoulders reversal pattern going back to last summer that traces to a downside target of $49. A violation of this level would mark a return to levels last seen in October 2016 — a loss of 24% from here.
When to watch for it: The company will next report results on July 13 before the bell. Analysts are looking for earnings of $1.58 per share on revenues of $18.6 billion. When the company last reported on April 13, earnings of $1.68 beat etiolates by eight cents on a 2.8% rise in revenues.
Turmoil in Italy: Morgan Stanley (MS)
Morgan Stanley (NYSE:MS) shares gave back 5.4% in trading on Tuesday, falling to critical support at $50 that was tested (and held) in February and again in early May.
What to watch for: MS shares aren’t rallying as strong as its peers — up barely a percent — and a breakdown from here would put the mid-November reaction lows in play. That would mark the first major pullback for MS stock since the downtrend that started in the summer of 2015.
When to watch for it: The company will next report result son July 18 before the bell. Analysts are looking for earnings of $1.15 per share on revenues of $10.2 billion. When the company last reported on April 18, earnings of $1.45 beat estimates by 20 cents on a 13.7% rise in revenues.
Turmoil in Italy: Goldman Sachs (GS)
Goldman Sachs (NYSE:GS) shares are among the worst looking on this list, already breaking down to levels not seen since last September for a loss of more than 18% from the highs set in March.
What to watch for: GS stock is seeing the weakest rebound on this list — up just one-third of a percent. That returns prices into the grips of a sideways range going back to late 2016. I guess reports the company made $200 million in a single day during the February volatility explosion/market selloff just wasn’t enough to get investors excited.
When to watch for it: Goldman Sachs will next report results on July 17 before the bell. Analysts are looking for earnings of $4.56 per share on revenues of $8.6 billion. When the company last reported on April 17, earnings of $6.95 per share beat estimates by $1.38 per share on a 25% rise in revenues.
Anthony Mirhaydari is the 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.
