Are These Bank Stocks Too Big to Fly?
10/22/2012 8:00 am EST
Trader Cory Mitchell, who specializes in short- to medium-term technical strategies, gives us four big-name bank stocks that have been flying high recently.
These four big name banking stocks have all been up between 13 and 39% in the last three months. While the upward progress is continuing in two, the other two stocks have paused in a sideways consolidation. Ultimately, the question is whether the uptrend is going to continue? Technical analysis is not always a crystal ball, but by using simple tools you can determine when the trend is strong and when it is not.
JPMorgan Chase & Co. (JPM) is up 22.06% in the last three months, and as of October 16 continued to forge upward hitting the highest price seen in five months. The uptrend is well defined since the 2012 low of $30.83 in June, and a trend channel signals an area of resistance from $44 to $45. Just beyond this is the 52-week high at $46.49. Created by a trendline in July is support at $40, and a drop below it will likely push the price to the next trendline and support region at $37.30 to $36.40. Traders will look to pick up the stock long on pull-backs that hold above support; dropping below support is a sign a decline may be coming.
As of the $37.40 close on October 16, Citigroup, Inc. (C) is up 38.94% in the last three months. Volume pushed higher on the October 15 and the next day as well, showing interest in the stock. Resistance is close by at the 52-week high of $38.40. A divergence on the RSI shows that momentum may be dying, making the volume burst look more like a trend finale rather than a sustainable buying boom. If the price moves above the 52-week high, resistance is expected between $40 and $41, with $40 being the price target for those that are long. A drop below $34 is the first sign that the stock may be weakening; moving below $32 will likely result in a further decline.
Royal Bank of Canada (RY) is up 13.86% over the last three months, as of the October 16 close. Most of the gain came in August and in early September, but the stock has moved sideways since then. The 52-week high is at $59.60 and is at the closest pivotal level, with a rise above it indicating a breakout of the current range and a continuation of the uptrend. Divergence on the RSI over the last two months, warns that an upside breakout may not occur, and if it does it might not last. Support is at $56.50, and if the price drops below it there is little support until $54 to $53 where the trendline which began in June intersects.
The stock of Bank of America Corporation (BAC) has also been moving more sideways since creating a swing high at $9.79 in mid-September. If the price rallies above that high, it is a positive sign giving a target of $10.75. The 52-week high is at $10.10, a key level to watch if the upside breakout occurs. Support is provided by the short-term range at $8.70. A downside breakout gives a target of $7.75, but could go lower as key support is not until the $7 area.
The Bottom Line
Price movement is the ultimate tool, as it is unwise to fight a trend. These banking stocks have been pushing higher for the last three months, and may continue to surge. Dropping through the support areas warns that the trend may be weakening. However, if the price pulls back toward support without breaking through it, such occurrences are often buying opportunities. Trends and trend channels provide levels to buy or sell, and an RSI indicator can help determine the strength of a trend, but its signals should not be acted on in isolation.
Charts courtesy of stockcharts.com