Are US banks about to break out?

July 17, 20121 Comment

Bankers are the people we love to hate – especially the big US banks. Nobody likes them.

  • Occupy Wall Street participants don’t like their ethics.
  • Investors don’t like their stock returns.
  • Regulators have uncovered their dirty laundry
  • Trading losses and scandals plague many of them
  • Customers need ‘em, but don’t love them.

 Despite it all, most of the big guys continue making money. We’re starting to see some earnings reports coming through proving that point this week.  My contrarian antenna goes up whenever there exists a profitable business model that is unloved by the public. Below are three dominant US banks stocks that look to be forming a base. A breakout from the noted base implies upside potential. I’ll focus on the technical profiles here, but it pays to do further diligence within this group before buying. Disclosure: I do not own any US banks right now.

Goldman Sachs

While the longer termed trend is down for GS (not shown), there is the potential for a near-termed upside trade as the stock breaks out of the base it’s been forming since May of this year. The neckline for the base lies around $98, and a positive earnings report this week pushed it through that level. It’s a short-termed buy if the stock stays above the neckline. Note the positive relative strength to the S&P500 (bottom of chart) and the move above its 50 day MA. The 200 day MA is flattening, but the stock remains below that level. Technical target for the stock lies between its 200 day MA at around $104, to its former support level of around $110. Supportive markets could drive the stock back near its recent highs into the mid $120’s. Don Vialoux of www.timingthemarket.ca notes that GS has positive seasonal influences at this time of the year.

Citibank

 A breakout above $29 with volume to support it would put this stock in the same position as GS, above. That is, a breakout would likely target a short termed upside trading potential into the $32 – $35 area. The stock is certainly basing—it’s found support at $25 twice now. Relative strength is positive vs. the S&P 500. Its toying with the 50 day MA. Wait for a breakout before acting.

Bank of America

 Unlike GS and C above, BAC is trading above its 200 and 50 day MA’s (not shown). Should BAC break $8.25, this stock could approach $10. The stock is making higher lows, making its current resistance at $8.25 the top of a small ascending triangle. Volume during the recent rise has been anemic. This is another one to watch for a breakout through resistance before acting.

Your comments on this and other posts are welcome, as always.

One Comment

  • Hi Keith,

    Intersting post yesterday. I actually bought august call options for GS before I read your article.
    I purchased them around the time GS pulled back to $98. Looking for a short term play here.
    This is more reasuring after reading your blog, specially after we havnt heard of QE3 yet.

    Regards,
    Jordan

    Reply

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