Avoiding These Banks Could Help Your Portfolio

03/30/2015 10:00 am EST

Focus: STOCKS

Thomas Aspray

, Professional Trader & Analyst

The financial industry is currently not a market leading sector in 2015, so MoneyShow’s Tom Aspray takes a technical look at three bank stocks to determine if they could continue to be a drag on your portfolio.

It was a rough week for stocks as even some potentially calming words from Fed Chair Janet Yellen late Friday could not give the stock market much of a boost. Many pointed to the weak Durable Goods report last Wednesday as the catalyst for the selloff.

Friday’s government report on the 4th quarter GDP did not help either as it indicated the profits fell in the last quarter and posted the first annual decline in profits since 2008. The full economic calendar this week will give the market plenty to digest and the monthly jobs report will be released on Friday, which is a market holiday.

The selling last week was broad based with the financial and technology stocks leading the market lowering, losing 2.96% and 2.70% respectively. Even the market leading healthcare sector was lower for the week. Most of market leading stocks were also hit with selling last week but they are still positive for the year.

The Spyder Trust (SPY) is now up 0.54% YTD, while the Sector Select Health Care (XLV) is up 7.11%. Most stock pickers know that the secret to successful stock picking is to pick stocks in market leading sectors. 

In last week’s 3 Material Stocks to Avoid, I took a look at three stocks that were looking weaker than the overall market. In 2015, the Sector Select Financial (XLF) is down 2.88%, so it is currently not a market leading sector. The relative performance of these three bank stocks suggests they could continue to be a drag on your portfolio.

chart
Click to Enlarge

Chart Analysis: Bank of America (BAC) has already had a rough year as it is down over 14% YTD. They report earnings on April 15.

  • The weekly chart shows that last week’s close was just above key support in the $14.92-$15 area, line b.
  • A break of this level should signal a drop to the weekly starc- band at $14.10.
  • There is further support from last October in the $13.95 area.
  • The tentative quarterly projected pivot support is at $13.02.
  • The weekly relative performance broke its support, line d, in early January, consistent with a week performer.
  • The RS line closed last week at another new low.
  • The weekly on-balance volume (OBV) has broken support, line e, that goes back to early 2014.
  • The OBV rallied back to its declining WMA before the recent drop.
  • The declining 20-week EMA is now at $16.23.

The daily chart of Bank of America (BAC) shows that it is now close to the lows from January with the daily starc- band at $15.02.

  • The monthly projected pivot support is at $14.19.
  • The daily RS line broke support and its WMA (see arrow) in early January when BAC was trading at $17.33.
  • The RS line has formed lower highs in February and March, line g.
  • The recent decline was signaled by a drop in the RS line below its WMA two weeks ago.
  • The daily OBV broke its support, line i, on March 18, and has dropped over 4% since.
  • The OBV is currently in a steep downtrend.
  • The 20-day EMA is now at $15.80 with the daily starc+ band and further resistance at $16.08.

Next: Two More Bank Stocks to Watch

|pagebreak|

chart
Click to Enlarge

Comerica Inc. (CMA) is an $8.0 billion financial services company that has both a business and retail bank division. It is currently down 4.08% YTD. It is scheduled to report earnings on April 17.

  • The close last week was below the prior five week lows.
  • The next good support (line a) and the weekly starc- band are in the $40.82 area.
  • The tentative 2nd quarter projected pivot support is at $36.30.
  • The weekly relative performance shows a clear pattern of lower highs, line b.
  • The RS line broke support last October and has since formed lower lows.
  • The weekly OBV has also formed lower highs, line c.
  • The OBV briefly broke major support, line d, early in the year and has stayed below its WMA.
  • The 20-week EMA is now at $45.65.
  • There is further weekly resistance now in the $46.83-$47.73 area.

Regions Financial (RF) is a $12.4 billion multi-dimensional regional banking company that reports its earnings on April 21.

  • The weekly chart shows that RF formed lower highs and lower lows in 2014.
  • The stock dropped to a low of $8.45 in early January before rebounding back to the $10 area.
  • A break of long-term support at line e, would project a decline to the $7.20-$7.50 area.
  • The relative performance violated its support, line f, in May 2014.
  • This signaled that is was going to be weaker than the S&P 500.
  • Since then, the RS line has formed lower highs, line g, and lower lows.
  • The OBV broke support going back to 2013, line h, in early 2015.
  • The OBV tested its declining WMA two weeks ago, before turning lower.
  • The 20-day EMA is now at $9.65 with further resistance in the $10 area.

What it Means: The weak relative performance and volume analysis of these three banking and financial companies suggests that they could decline another 8-10% below current levels.

Bank of America (BAC) is the most oversold on a short-term basis and could see a rebound before its earnings are released.

How to Profit: No new recommendation.

Related Articles on STOCKS