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Earnings Preview for Goldman Sachs and JPMorgan: How to Trade the Banks

JPMorgan and Goldman Sachs will kick off earnings season on Tuesday. Here's how the charts look going into the print.

Can you believe it’s that time already? The bank stocks are gearing up to kick off earnings season, starting on Tuesday.

We’ll hear from JPMorgan Chase  (JPM) - Get JPMorgan Chase & Co. (JPM) Report, often referred to as the bluest of blue-chip bank stocks. The other is Goldman Sachs  (GS) - Get Goldman Sachs Group, Inc. (GS) Report, a leader in wealth management and trading revenue.

For what it’s worth, PepsiCo  (PEP) - Get PepsiCo, Inc. Report also is reporting earnings on Tuesday before the rest of the banks like Citigroup  (C) - Get Citigroup Inc. Report and Wells Fargo  (WFC) - Get Wells Fargo & Company Report report later in the week.

Analysts aren’t overly bullish on the group for the quarter, with consensus estimates calling for a year-over-year decline in revenue.

However, the stocks have been consolidating lately and recently received good news after passing the Fed’s stress tests. Let’s look at some charts.

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Trading JPMorgan Chase

Weekly chart of JPMorgan stock.

Weekly chart of JPMorgan stock.

I wanted to zoom out a bit with JPMorgan by using the weekly chart. It does a good job showing how, despite a decent rally then a hard two-week pullback, the stock is roughly flat over the last four months.

Last week, JPMorgan put in a robust weekly bar despite the holiday-shortened trading week. Shares hammered off the lows and closed near the highs. We’re seeing some continuation higher on Monday. 

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Now reclaiming the 10-week and 21-week moving averages with Monday’s rally, bulls are looking for some more good news. Mainly, a post-earnings close above these two measures, followed by a close over $161.75. That starts to unlock further upside, such as the highs near $167.

If JPMorgan can clear its current high at $167.44, then perhaps it can make a further push up toward the 161.8% extension near $180.

On the downside, a move below last week’s low could put the 10-month moving average in play.

Trading Goldman Sachs

Weekly chart of Goldman Sachs stock.

Weekly chart of Goldman Sachs stock.

Goldman Sachs has been trading a bit better, although it’s also been volatile in recent weeks.

Shares have been wedging into a tighter and tighter range, marked by a series of higher lows and lower highs.

On Thursday, Goldman Sachs fell hard, but stopped just shy of the 21-week moving average. The stock followed that disheartening session with a gap-up open on Friday and a weekly close above the 21-day, 50-day and 10-week moving averages.

Shares are pushing higher again on Monday. From here, it’s simple. 

Bulls want to see Goldman Sachs hold the 50-day moving average on any sort of post-earnings pullback. Below puts the gap-fill in play from Friday’s gap-up (near $363), followed by last week’s low and potentially the 21-week moving average.

On the upside, let’s see if Goldman Sachs stock can rally into the $390s. If so, $400-plus is in play.