STOCKS

This week’s earnings reports will be the next big test for the stock market and the focus is likely to be on the big banks, but Moneyshow’s Tom Aspray sees opportunities in those banks that drop if earnings disappoint.

The US stock index futures are a bit lower early Monday as they do not seem to be impressed by the 3% gain in the Shanghai Composite. Of course, the real test is likely to come from home as the market reacts to this week’s full slate of earnings reports.

Since the November, lows the Select Sector SPDR Financial (XLF) has been one of the star performers as it is up 13.6% versus just a 9.2% gain in the Spyder Trust (SPY). Both look positive technically though the financials stocks will be under the microscope this week.

Often times a close analysis of the technical studies will help warn one in advance of a stocks earning’s misses, but it can also help you spot which stocks to buy if they correct in reaction to their earnings. Two of the big banks that report earnings this week are outperforming the S&P 500 and look attractive for purchase at good support.

chart
Click to Enlarge

Chart Analysis: The weekly chart of the Select Sector SPDR Financial (XLF) shows the strong close above the resistance at line a, to start off the New Year.

  • The initial upside targets are in the $18 area with the quarterly R2 at $18.42.

  • There are further chart targets in the $19-$20 area.

  • The weekly relative performance also shows an impressive breakout through resistance at line c, which confirms the price action.

  • The weekly on-balance volume (OBV) has broken through its short-term downtrend, line e, that was formed last fall.

  • A similar OBV breakout last July was a good buy signal and XLF rallied over 17%.

  • There is initial support now at $16.45-75 with the quarterly pivot at $16.23.

JPMorgan Chase & Co. (JPM) will report their earnings Wednesday and JPM has had a nice run from the late 2012 lows at $42.90 breaking out above resistance at $44.24, line f.

  • The next resistance is at the 2012 high at $46.29 with the early 2011 high at $48.36.

  • The relative performance broke through its longer-term downtrend, line h, which confirms the uptrend in the RS line (line i).

  • The RS line has held well above its rising WMA.

  • The weekly OBV moved through its long-term resistance, line j, in 2013 as it is acting strong than prices.

  • The daily studies are positive and have confirmed the recent highs.

  • There is initial support at $44-$44.50 with the quarterly pivot at $42.83.

NEXT PAGE: Two More Big Banks

Tickers Mentioned: XLF, SPY, JPM, BAC, USB