Bank stocks kicked off the earnings season on Tuesday, with JPMorgan Chase (JPM) - Get JPMorgan Chase & Co. (JPM) Report and Goldman Sachs (GS) - Get Goldman Sachs Group, Inc. (GS) Report leading off.
Not surprisingly, Goldman Sachs crushed expectations on strong investment banking revenue.
That was also a catalyst for JPMorgan, which handedly beat on top- and bottom-line expectations despite revenue slipping 7% year over year.
Now it’s time for Bank of America (BAC) - Get Bank of America Corp Report and Wells Fargo (WFC) - Get Wells Fargo & Company Report to report. Both will do so on Wednesday before the stock markets open.
Although Goldman Sachs and JPMorgan delivered strong results, both of the stocks have fallen about 2% so far on the day. Will Bank of Americsa and Wells Fargo deliver similar price action?
Trading Bank of America
Bank of America topped out about six weeks ago in early June. Since then, it’s put in a few lower highs - evident by its downtrend resistance mark (blue line) - and has broken below several key moving averages.
While the 21-week moving average has wavered as support, it has ultimately held. That’s back on watch on Tuesday, as shares struggle for upside traction.
It hardly matters, at least until the company reports earnings. On a post-earnings rally, I want to see Bank of America stock clear downtrend resistance. However, a close above the 50-day moving average would be even more convincing.
In that scenario, a move above $42 puts the highs near $43.50 on the table. Above that and perhaps the 161.8% extension is a possible upside target.
On the downside, keep an eye on the $38.50 level. Below that and a sustained move lower may be in play.
Trading Wells Fargo
Last week, I pointed out how Wells Fargo appears stuck between its 61.8% retracement and its 78.6% retracement. Ahead of earnings, that continues to be the case.
Further, the 200-week moving average has been resistance, while the 21-week moving average has been support.
Those are essentially the levels to watch after the company reports. Simply put, can Wells Fargo reclaim the 200-week moving average and break out over the 78.6% retracement? If so, that could put $50 in play, then $55.
If not, we need to see the 21-week moving average and the $41.75 area hold as support. Below puts sub-$40 on the table.