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Prepare For A Flood Of Bank Earnings

NEW YORK ( TheStreet) -- I have been analyzing the publicly traded FDIC-insured financial institutions since early 2006. I began my studies a year earlier focusing on the housing market and home builder stocks. I correctly called the top for the builders in mid-2005, and then turned my attention to the community and regional banks. I began to warn about all banks in April 2006 and community banks began to fall like dominoes at the end of 2006 with the money center and regional banks crumbling beginning in February 2007.

Since the stock market bottom in March 2009 I have been dissecting the FDIC Quarterly Banking Profiles tracking the improvements in the banking system, but also warning that the Great Credit Crunch is not yet over.

A month ago I wrote, Big Banks Face Limited Upside, but when the PHLX KBW Banking Index (^BKX) held its 50-day simple moving average on June 24 bank stocks began a leadership run into this week. What's interesting is that bank stocks did not participate in Thursday's strong market where the Dow industrials, S&P 500 and Russell 2000 closed above my monthly pivots at 15,437, 1669.0 and 1030.75 respectively. In fact, 11 of the 12 bank stocks that I profiled today set multi-year highs between July 8 and July 11.

Remember that the banking index includes the four 'too big to fail' money center banks and that all 24 components of the index are rated hold. This makes next week's earnings from these 12 banks extremely important.

On July 8 I wrote, Bank Indices Set Multi-Year Highs Pre-Earnings and the banking index set at least an interim peak on July 9. Bank earnings must beat on EPS and revenue without cautious guidance.
[Read: <a target="blank" data-add-tracking="true" href=""><em> Foreign Business in Tibet? Investor Beware</em></a>]

The ValuEngine valuation warning intensified even more on Thursday with 75.0% of all stocks overvalued, 40.6% overvalued by 20% or more. The finance sector is 18.0% overvalued with a continued equal-weight asset allocation rating.
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