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How to Trade Large Bank Earnings This Week

NEW YORK (TheStreet) -- The earnings parade picks up speed this week with 13 larger banks reporting second-quarter results.

The earnings bar has been raised after the strong performance from two "too-big-to-fail" banks, JPMorgan Chase (JPM) and Wells Fargo (WFC) as these stocks rallied 6% and 3.25%, respectively, on Friday.

I profiled JPMorgan Chase and Wells Fargo a week ago in "Key Earnings Reports This Week", and the pop in JPMorgan Chase's shares was not surprising as the "London Whale" derivatives loss was shy of the $9 billion that some analysts feared.

The bank reported a loss of $5.8 billion and said it may increase by another $1.6 billion.

The better-than-expected earnings report was helped by the bank's reduction in reserve for losses. This practice has been an underlying theme in earnings from banks over the past several quarters.

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My benchmark for the larger banks it's the KBW Bank Index (BKX), which consists of 24 of the U.S.'s largest FDIC-Insured financial institutions.

The BKX is up 41.0% since October 2011 and 16.5% year to date.

The weekly chart of the index (below) is positive with a rising momentum reading (12x3x3 weekly slow Stochastic) with a weekly close above the five-week modified moving average at 45.25, and above the 200-week simple moving average at 44.95.

My annual value level is 42.98 with a quarterly pivot at 46.03 and a monthly risky level at 48.61 vs. the March 19 high at 50.69.

Source: Thomson Reuters

Table of ValuEngine Data on Large Banks

How to read the table:

OV/UN Valued: All 13 large banks are undervalued, according to ValuEngine.

VE Rating: A 3-Engine rating is a Hold, while a 4-Engine rating is a Buy.

Last 12-Month Return (%): Banks with a red number declined by that percentage. Those with a black number increased by that percentage.

Forecast One-Year Return: All numbers are black, indicating that all 13 banks in the table are projected to move sideways to higher over the next 12 months.

P/E Ratios: Large banks have favorable forward price-to-earnings ratios between 7.2 and 15.9.

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