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Bank Stocks Have Staged a Nice Rebound, but Don't Expect It to Last

NEW YORK (TheStreet) -- Shares of the biggest U.S. banks have staged a rebound over the past month, rising between 1.1% and 5.2%, but second-quarter earnings season (which begins next month) is likely to pressure these stocks anew.

Data from the recently released Quarterly Banking Profile from the Federal Deposit Insurance Corp. don't bode well for second-quarter earnings. FDIC-insured financial institutions recorded net income of $37.2 billion in the first quarter, down 7.6% from the first quarter of 2013. The FDIC attributed the decline in earnings mainly to a 10.7% decline ($7.1 billion) in noninterest income, which consists of a reduced decline in reserves for losses and reduced sales of assets.

Banks are holding "other real estate owned," making the bet that values of these nonperforming assets will increase in value. Income has been hurt by reduced mortgage activities and by a decline in trading profits.

In my view, all of these trends will continue in the second quarter and are likely lead to disappointing results.

Before the banks stocks' latest rebound, most had sold off in the wake of first-quarter earnings reports (released between April 10 and April 30). I track the large money center and regional banks using the KBW Bank Index, which consists of 24 of the largest U.S. banks.

Only nine of the KBW Bank Index's components beat analysts' earnings per share estimates, while three matched estimates and 12 missed. Wells Fargo (WFC) was the only bank that broke even in term of price change between our pre-earnings post of April 10 and our postearnings post of May 7, "Why Bank Shares Are a Problem for the Stock Market."

The biggest losers between April 10 and May 6 were Bank of America (BAC), Fifth Third Bank (FITB) and JPMorgan Chase (JPM), which were down 10% to 11%.

Here are our updated profiles for the four "too big to fail" money center banks. Our "Crunching the Numbers" tables for all 24 components of the regional banking index follow on pages 2 and 3.

Bank of America ($15.21), up 3.3% since May 6. The stock traded as low as $14.37 on May 16 and has been below its 200-day simple moving average at $15.52 since April 28.

Bank of America is the only stock in the KBW Bank Index with a negative but oversold weekly chart. Its five-week modified moving average at $15.34, weekly and semiannual value levels are $13.81 and $10.69, respectively, and  quarterly and monthly risky levels at $15.53 and $17.59, respectively.

Citigroup (C) ($48.19), up 3.9% since May 6. The stock traded as low as $45.18 on April 11 and has been below its 200-day SMA at $49.53 since March 26.

The weekly chart is positive with its five-week MMA at $47.61. Holding a semiannual pivot at $48.06 indicates potential strength to monthly and quarterly risky levels at $49.38 and $49.61, respectively. Weekly and annual value levels are $47.39 and $21.86, respectively.

JPMorgan Chase ($55.60), up 4.2% since May 6. The stock has been trading back and forth around its 200-day SMA at $55.50 since April 11, going as low as $52.97 on May 16.

The weekly chart is positive given a close this week above its five-week MMA at $55.48. Quarterly and semiannual value levels are $54.47 and $51.64, respectively, with a monthly risky level at $61.03.

Wells Fargo ($51.09), up 4.1% since may 6. The stock set an all-time intraday high at $51.17 on June 2 and has been well above its 200-day SMA at $45.43.

The weekly chart is positive but overbought with its five-week MMA at $49.71. Weekly and quarterly value levels are $49.44 and $47.33, respectively, with a monthly risky level at $53.08.

Your investment policy among these stocks depends on whether you are a buyer on weakness or a seller of strength. We advocate using a good-'til-cancelled limit order to buy weakness to a value level or to sell strength to a risky level.

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