Which U.S. Banks Could Brexit Hurt Most?
The "too big to fail" money center banks Bank of America (BAC) - Get Report , Citigroup (C) - Get Report , JPMorgan Chase (JPM) - Get Report and Wells Fargo (WFC) - Get Report will soon report earnings for the second quarter. It may be too soon for these banking giants to show any adverse effects of the United Kingdom's referendum to leave the European Union. However, guidance may reflect potential exposure to Brexit.
Both Wells Fargo and Citigroup are holdings in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio.
According to SNL Financial, U.S. banks including Citigroup, JPMorgan and Bank of America are exposed to Brexit risk as shown in regulatory filings of financial data at the end of 2015. Banks must report exposures that exceed certain thresholds for deposit balances, securities, federal funds sold, and loans. The counter-party risk that is monitored includes banks, government agencies, insurance companies, investment banks and pension funds. S&P Global Market Intelligence analyzed this data to assess the exposure following the Brexit vote.
Given these uncertainties, the "too big to fail" banks are either in correction or bear market territory. These four banking giants are in the KBW banking index, which is in bear market territory as well -- 22.9% below its mutiyear high, set in July 2015.
Another concern is the unexplained surge of $13.5 trillion in the notional amount of derivatives in the first quarter of 2016 to $195.5 trillion. This exposure is shown on the FDIC quarterly banking profile for the first quarter. Global derivative exposures total $500 trillion.
As for earnings expectations, JPMorgan reports first on July 14. Analysts expect the nation's biggest bank to earn $1.43 per share.
Citigroup and Wells Fargo report on July 15. Analysts expect these two to earn $1.15 and $1.03 per share, respectively.
Bank of America reports on July 18. Analysts expect the bank to earn 37 cents a share.
Here's a scorecard for the four "too big to fail" banks.
Here's the daily chart for Bank of America.
Courtesy of MetaStock Xenith
Bank of America had a close of $12.74 on Tuesday down 24.3% year to date and in bear market territory, 31.1% below its multiyear high of $18.48, set on July 22, 2015. The stock is up 15.9% from its 2016 low of $10.99, set on Feb. 11.
The daily chart shows the Fibonacci Retracements from the July 22 high to the Feb.11 low. The rebound to its 2016 high of $15.30 on April 27 was below its 200-day simple moving average, then at $15.57, and below its 61.8% retracement of $15.62. From this high the stock declined to and held its 38.2% retracement of $13.86 on May 6. The stock then rebounded to $15.15 into May 25, but again failed below its 200-day simple moving average, then at $15.21.
Since the Brexit vote, the stock plunged below its 38.2% retracement of $13.86 and to the June 27 low of $12.05, which is below the 23.6% retracement of $12.76. After rebounding back above this retracement, the stock closed Tuesday just above it. The stock is well below its price gap lower from the Dec. 31 low of $16.83.
Here's the weekly chart for Bank of America.
Courtesy of MetaStock Xenith
The weekly chart for Bank of America is negative, with the stock below its key weekly moving average of $13.50 and below its 200-week simple moving average of $14.77. The weekly momentum reading is projected to decline to 33.99 this week, down from 40.43 on July 1.
Investors looking to buy the stock should consider doing so on weakness to $12.18, which is a key level on technical charts until the end of July.
Investors looking to reduce holdings should consider selling strength to $15.70, which is a key level on technical charts until the end of September.
Here's the daily chart for Citigroup.
Courtesy of MetaStock Xenith
Citigroup had a close of $40.78 on Tuesday, down 21.2% year to date. It is in bear market territory, 33.1% below its multiyear high of $60.95, set on July 23, 2015. The stock is up 18.1% from its 2016 low of $34.52, set on Feb. 11.
The daily chart shows the Fibonacci Retracements from the July 23 high to the Feb.11 low. The rebound from the low held its 23.6% retracement of $40.75 between March 9 and April 11, then strength failed at its 50% retracement of $47.72. The 38.2% retracement had been a magnet since then at $44.60.
Before the Brexit vote, the stock was just below its 38.2% retracement. It fell to a low of $38.31 on June 27, below the 23.6% retracement of $40.75. After bouncing back above this retracement, the stock ended Tuesday just above this key level. The stock is well below its price gap lower from the Dec. 31 low of $51.75.
Here's the weekly chart for Citigroup.
Courtesy of MetaStock Xenith
The weekly chart for Citibank is negative, with the stock below its key weekly moving average of $42.68 and below its 200-week simple moving average of $48.35. The weekly momentum is projected to decline to 36.74, down from 43.30 on July 1.
Investors looking to buy the stock should consider doing so on weakness to $37.20, which is a key level on technical charts until the end of July.
Investors looking to reduce holdings should consider selling strength to $50.81, which is another key level on technical charts until the end of September.
Here's the daily chart for JPMorgan Chase.
Courtesy of MetaStock Xenith
JP Morgan had a close of $59.55 on Tuesday, down 9.8% year to date. It is in correction territory, 15.7% below its all-time high of $70.61, set on July 23, 2015. The stock is up 13.4% from its 2016 low of $52.50, set on Feb. 11.
The daily chart shows the Fibonacci Retracements from the July 23 high to the Aug. 24 low of $50.07. The rebound from the low held its 23.6% retracement of $54.89 between Jan. 20 and Feb. 24, then failed at its 50% retracement of $60.31 between March 4 and March 23. The 38.2% retracement of $57.89 then held on April 7. Strength then took the stock to and above its 61.8% retracement of $62.74, beginning on April 14. The stock set its 2016 high of $66.20 on May 25, which filled the gap to the Dec. 31 low of $66.00.
The stock was above its 61.8% retracement at the Brexit vote, but plunged as low as $57.05 on June 27, below the 38.2% retracement of $57.89. The rebound that followed failed at the 200-day simple moving average of $61.97 on June 30. The stock ended Tuesday below the 50% retracement of $60.31.
Here's the weekly chart for JPMorgan.
Courtesy of MetaStock Xenith
The weekly chart for JPMorgan is negative, with the stock below its key weekly moving average of $61.55 and above its 200-week simple moving average of $57.02. The weekly momentum reading is projected to decline to 51.98 this week, down from 61.13 on July 1.
Investors looking to buy the stock should consider doing so on weakness to $55.45, which is a key level on technical charts until the end of 2016.
Investors looking to reduce holdings should consider selling strength to $63.52, which is a key level on technical charts until the end of this week.
Here's the daily chart for Wells Fargo.
Courtesy of MetaStock Xenith
Wells Fargo had a close of $46.21 on Tuesday, down 15% year to date. It is in bear market territory, 20.4% below its all-time high of $58.07, set on July 23, 2015. The stock is up only 3.8% from its 2016 low of $44.50, set on Feb. 11.
The daily chart shows the Fibonacci Retracements from the July 23 high to the Feb. 11 low. The stock had been trading under the influence of the 23.6% retracement of $47.86 and the 38.2% retracement of $49.95 between Feb. 16 and May 18. The 2016 high of $51.41 was set on April 27, below its 50% retracement of $51.63.
The stock was below its 23.6% at the Brexit vote and fell to a test of its multiyear low of $44.50 on June 27. Today the stock is well below its 23.6% retracement of $47.86. The stock is well below its price gap lower from the Dec. 31 low of $54.22.
Here's the weekly chart for Wells Fargo.
Courtesy of MetaStock Xenith
The weekly chart for Wells Fargo is negative, with the stock below its key weekly moving average of $47.58 and below its 200-week simple moving average of $47.35. The weekly momentum reading is projected to decline to 30.75, down from 34.74 on July 1.
Investors looking to buy the stock should consider doing so on weakness to $45.93, which is a key level on technical charts until the end of July.
Investors looking to reduce holdings should consider selling strength to $49.40, which is a key level on technical charts until the end of 2016.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.