Bank Stocks Have Symptoms of QE Fatigue

NEW YORK ( TheStreet) -- The "too big to fail" money center banks and the large regional banks make up the 24 bank stocks in the PHLX KBW Banking Index ( BKX).

The last time I profiled these banks was on Sept. 26 in Don't Bank on Bank Stocks, Just Trade Them and since then the BKX moved up to a potential double top at $52.04 on Oct. 5 vs. its 2012 high of $52.11 on Sept 14.

The sideways-to-down pattern since Oct. 5 has created negative technical divergences on both daily and weekly charts for several members of the BKX and for the BKX as an index. The BKX made significant gains of 52.3% since bottoming in October 2011, and is up 25.9% year to date.

Fundamentally www.ValuEngine.com shows the Finance sector 11.3% overvalued.

The weekly chart for the BKX ended last week with declining momentum (12x3x3 weekly slow stochastic) reading of 78.28 down from 81.98 the prior week. This decline under 80 on a scale of 0 to 100 is a negative divergence.

Last Friday's close at 49.25 was just below the five-week modified moving average at 49.50. This is a technical negative and a symptom of "QE Fatigue."

Chart Courtesy of Thomson/Reuters

The daily chart for the BKX (49.60) shows declining momentum with the BKX below its 21-day simple moving average at 50.33, is just above its 50-day SMA at 49.56 and is above its 200-day SMA at 46.76. My quarterly and annual value levels are 47.55 and 42.98 with monthly and weekly risky levels at 51.11 and 53.04.

The above table shows data from www.ValuEngine.com covering nine stocks in the BKX.

Reading the Table

OV/UN Valued: The stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-Engine" rating is a Strong Sell, a "2-Engine" rating is a Sell, a "3-Engine" rating is a Hold, a "4-Engine" rating is a Buy and a "5-Engine" rating is a Strong Buy.

Last 12-Month Return (%): Stocks with a Red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: The price at which to enter a GTC Limit Order to buy on weakness. The letters mean; W-Weekly, M-Monthly, Q-Quarterly, S-Semiannual and A- Annual.

Pivot: A level between a value level and risky level that should be a magnet during the timeframe noted.

Risky Level: The price at which to enter a GTC Limit Order to sell on strength.

Bank of America ( BAC) ($9.32 vs. $8.93 on Sept. 26) remains buy rated according to ValuEngine with a reasonable P/E ratio and is above its 200-day SMA at $8.20. Investors and traders had the opportunity to book profits on strength to $9.55, which was the strategy suggestion on Sept. 26. Continue to employ a "buy and trade" strategy between the value level and risky level.

BB&T ( BBT) ($28.95 vs. $33.17 on Sept. 26) still has a buy rating, a reasonable P/E ratio and is below its 200-day SMA at $30.80. Investors and traders should continue to employ a "buy and trade" strategy between the value level and risky level. If you sold on Sept. 26 at $33.17 you could have bought at my semiannual pivot at 30.81.

Citigroup ( C) ($37.39 vs. $32.86 on Sept. 26) still has a Buy rating with a reasonable P/E ratio and is above its 200-day SMA at $31.39. If you booked profits at $34.60 continue to employ a "buy and trade" strategy between the value level and risky level.

JP Morgan Chase ( JPM) ($41.68 vs. $40.55 on Sept. 26) still has a buy rating, has a favorable P/E ratio and is above its 200-day SMA at $38.89. If you booked profits on strength to my annual pivot at $41.66, continue to employ a "buy and trade" strategy between the value level and risky level.

PNC Financial ( PNC) ($58.20 vs. $64.54 on Sept. 26) had a buy rating on Sept 26, but has since been downgraded to hold according to ValuEngine. PNC has a favorable P/E ratio and is below its 200-day SMA at $61.60. If you booked profits at my annual pivot at $64.56, continue to employ a "buy and trade" strategy between the value level and risky level.

Regions Financial ( RF) ($6.52 vs. $7.21 on Sept. 26) still has a strong buy rating according to ValuEngine, has a reasonable P/E ratio and is just above its 200-day SMA at $6.52. If you booked profits at $7.21, continue to employ a "buy and trade" strategy between the value level and risky level. If you wish to be more aggressive buy off the 200-day SMA.

SunTrust Banks ( STI) ($27.20 vs. $28.20 on Sept. 28) continues to have a strong buy rating according to ValuEngine, has a favorable P/E ratio and is above its 200-day SMA at $24.31. If you booked profits at my monthly risky level at $29.66, continue to employ a "buy and trade" strategy between the value level and risky level.

US Bancorp ( USB) ($33.21 vs. $34.12 on Sept. 26) still has a buy rating according to ValuEngine with a reasonable P/E ratio and is above its 200-day SMA at $31.80. Continue to employ a "buy and trade" strategy between the value level and risky level.

Wells Fargo ( WFC) ($33.69 vs. $34.72 on Sept. 26) still has a Buy rating according to ValuEngine with a reasonable P/E ratio and is above its 200-day SMA at $33.00. Continue to employ a "buy and trade" strategy between the value level and risky level.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.