NEW YORK (TheStreet) -- The KBW Bank Index (^BKX) saw 19 of its 24 regional bank components subjected to the Federal Reserve stress tests mandated by the Dodd-Frank Act. Zions Bancorp (ZION) - Get Report was the only index component to fail the test when results were released Thursday. Eleven other financial companies not in the banking index each passed the stress test.
Among the 24 regional banks in today's 'Crunching the Numbers' table four bank stocks traded to new all-time intraday highs and three came close in reaction to the results. This winners list included 'too-big-to-fail' JPMorgan (JPM) - Get Report which almost set a new high, and Wells Fargo (WFC) - Get Report which set a new high.
In my opinion strength above prior all-time highs set in February 2007 is not justified by the status of the banking system. The bank index is up 5% year-to-date while the Housing Index (^HGX) is down 2.7%. The housing market is a lifeblood of the bigger banks and mortgage applications are weak as is recent data on housing starts. The big banks have reduced headcount in the mortgage operations which implies that they do not see an improved housing market anytime soon.
Courtesy of MetaStock Xenith
The weekly chart for the housing index is extremely important, and it shows that the index ended last week negative. The index closed below its five-week modified moving average at 202.57 on Friday with its 12x3x3 weekly slow stochastic at 75.06 declining below 80.00. This index is now below its 61.8% Fibonacci retracement at 202.05. The downside is to the 50% retracement at 173.8 which will likely line up with the rising 200-week simple moving average now at 138.96.
On March 19 I wrote, Is It Time to Sell Homebuilder Stocks? My theme was to sell strength in homebuilder stocks and the performance of KB Home(KBH) - Get Report and Lennar(LEN) - Get Report after releasing positive earnings was right on this script. KB Home traded as high as $19.44 on March 19 following its earnings release then closed at $17.79 on March 21. This weekly close was below its 200-day SMA at $17.94 and below its five-week MMA at $18.42 resulting in a negative weekly chart. Lennar followed KB higher and traded as high as $42.72 on March 19 the day before releasing its positive earnings. Lennar ended the week at $39.57 below its 50-day SMA at $40.42 and below its five-week MMA at $40.46 also with a negative weekly chart.
Weakness in the homebuilders is a warning for regional banks.
Courtesy of MetaStock Xenith
The weekly chart for the banking index is positive with Friday's close above its five-week MMA at 69.83 with rising 12x3x3 weekly slow stochastics. This index is between its 50% Fibonacci retracement at 69.37 with the 61.8% retracement a major resistance at 81.54. There could be some additional upside for the 24 components but like the homebuilders I suggest selling strength on regional banks.
If you do not agree with my strategy you can still use the numbers we crunched for you in today's table. If you are building long positions, consider adding to longs using GTC (good until cancelled) limit orders to buy weakness to the value levels shown in the table. If you are reducing positions to book profits as I suggest, consider doing so using GTC limit orders to sell strength to risky levels shown in the table.
Bank of America(BAC) - Get Report ($17.56 vs. $15.57 on Dec. 31 up 12.8% YTD) traded as high as $18.03 on Friday with its quarterly risky level at $18.48. I show a weekly value level at $17.40 with a monthly pivot at $17.74. The weekly chart is positive with its five-week MMA at $16.82.
BB&T (BBT) - Get Report ($40.19 vs. $37.32 on Dec. 31 up 7.7% YTC) traded as high as $40.59 on Friday with its quarterly risky level at $41.09. I show weekly and monthly value levels at $38.48 and $37.77. The weekly chart is positive with its five-week MMA at $38.34.
Citigroup(C) - Get Report ($50.08 vs. $52.11 on Dec. 31 down 3.9% YTD) traded as high as $51.00 on Friday then ended the day below its 200-day SMA at $50.27 with its monthly risky level at $51.47. I show weekly and semiannual value levels at $48.41 and $48.06. The weekly chart is neutral with its five-week MMA at $49.31 with declining stochastic.
Commerce Bancshares (CBSH) - Get Report ($46.52 vs. $44.91 on Dec. 31 up 3.6% YTD) traded as high as $47.31 on March 21 which is an all-time intraday high with its semiannual risky level at $47.50. I show monthly and quarterly value levels at $45.66 and $44.51. Commerce was not subject to the stress test and its weekly chart is positive with its five-week MMA at $44.86.
Cullen Frost Bank (CFR) - Get Report ($78.16 vs. $74.43 on Dec. 31 up 5% YTD) traded as high as $78.56 on Friday which is an all-time intraday high and a test of its monthly risky level at $78.51. I show weekly and quarterly value levels at $76.82 and $75.11. Cullen was not subject to the stress test and its weekly chart is positive with its five-week MMA at $75.19.
Capital One (COF) - Get Report ($75.40 vs. $76.61 on Dec. 31 down 1.6% YTD) traded as high as $76.93 on Friday with this week's pivot at $75.39 and semiannual monthly risky level at $81.94. I show a semiannual value level at $73.98. The weekly chart is positive with its five-week MMA at $73.30.
First Niagara (FNFG) ($9.27 vs. $10.62 on Dec. 31 down 12.7% YTD) traded as high as $9.50 on Thursday and has been below its 200-day SMA at $10.18 since Jan. 24 with my annual pivot at $9.70. First Niagara was not subject to the stress test and its weekly chart is positive with its five-week MMA at $9.25.
Huntington Banc(HBAN) - Get Report ($9.89 vs. $9.65 on Dec. 31 up 2.5% YTD) traded as high as $10.11 on Friday with a weekly value level at $9.47 with a quarterly pivot at $9.83 and monthly and semiannual risky levels at $10.09 and $10.66 with the monthly level tested at the high. The weekly chart is positive with its five-week MMA at $9.52.
JP Morgan ($60.17 vs. $58.48 on Dec. 31 up 2.9% YTD) traded as high as $61.20 on Friday which came close to setting a new all-time intraday high with weekly and quarterly risky levels at $60.71 and $63.43. I show a monthly value level at $57.03. The weekly chart is positive with its five-week MMA at $57.90.
M&T Bank Corp (MTB) - Get Report ($121.13 vs. $116.42 on Dec. 31 up 4% YTD) traded as high as $123.04 on Friday which came close to setting a new all-time intraday high with a monthly value level at $117.39, a weekly pivot at $121.66 and semiannual risky levels at $124.65 and $129.60. The weekly chart is positive with its five-week MMA at $116.69.
PNC Financial(PNC) - Get Report ($86.87 vs. $77.58 on Dec. 31 up 12% YTD) traded as high as $87.80 on Friday which came close to setting a new all-time intraday high with a semiannual pivot at $85.01. The weekly chart is positive with its five-week MMA at $82.39.
SunTrust Banks(STI) - Get Report ($40.36 vs. $36.81 on Dec. 31 up 9.6% YTD) traded as high as $41.75 on Friday with a monthly value level at $39.16 and a quarterly risky level at $42.62. The weekly chart is positive with its five-week MMA at $38.51.
US Bancorp(USB) - Get Report ($43.02 vs. $40.40 on Dec. 31 up 6.5% YTD) traded as high as $43.55 on Friday which set a new all-time intraday high which tested my quarterly risky level at $43.52. The weekly chart is positive with its five-week MMA at $41.32.
Wells Fargo ($49.12 vs. $45.40 on Dec. 31 up 8.2% YTD) traded as high as $49.97 on Friday which set a new all-time intraday high which tested my quarterly risky level at $49.48. The weekly chart is positive but overbought with its five-week MMA at $46.90.
Zions Bancorp ($31.24 vs. $29.96 on Dec. 31 up 4.3% YTD) traded as high as $33.33 on Thursday before the stress test results were released then traded as low as $30.88 on March 21 after failing the test. Zions minimum Tier 1 common ratio was 3.6 below the 5 minimum passing grade. The high was a test of my semiannual risky level at $32.58 and this week's value level is $30.90. The weekly chart is positive with its five-week MMA at $30.69.
I did not list nine of the components of the banking index but their numbers are in the table below.
Crunching the Numbers with Richard Suttmeier
The Min Tier 1 Common Ratio shows each bank's score with an n/a meaning that this bank did not take the test. The capital ratios are calculated using capital action assumptions provided within the Dodd-Frank stress testing rule where a bank under a reading of 5 failed the test.
There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.
The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.
Interpretations: (stocks below a moving average listed in Red are below that moving average)
Five-Week Modified Moving Average (MMA) is one of two indicators that define whether or not a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.
A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.
A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.
A stock with a neutral technical rating has a profile that is not positive or negative.
The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three to five year horizon. (even Apple declined to its 200-week SMA in June 2013)
The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three to five day horizon and vice versa.
The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators in financial TV.
The 200-Day Simple Moving Average is another technical support or resistance and I consider this level as a shorter-term "reversion to the mean" over a rolling six to 12 month horizon. (even Apple tested or crossed its 200-day SMA in nine of the last 10 years)
Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.
Investors who wish to buy a stock should use a good-until-canceled GTC limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff
Richard Suttmeier is the chief market strategist at
ValuEngine.com. He has been a professional in the U.S. Capital Markets since 1972, transferring his engineering skills to the trading and investment world.
Suttmeier has an engineering degree from Georgia Tech and a Master of Science degree from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. He became the first long bond trader for Bache in 1978, and formed the Government Bond Department at LF Rothschild in 1981, helping establish that firm as a primary dealer in 1986. This experience gives him the insights to be an expert on monetary policy, which he features in his newsletters, and market commentary.
Suttmeier's industry licenses include, Series 7 and Registered Principal (Series 24). He has been the Chief Market Strategist for ValuEngine.com since 2008 and often appears on financial TV.
Click here for details on Suttmeier's "Buy and Trade" investment strategy.
Richard Suttmeier can be reached at RSuttmeier@Gmail.com