Big Banks Face Limited Upside

NEW YORK ( TheStreet) -- We began 2013 with positive fundamentals for the bank stocks in the PHLX KBW Banking Index . Among the 24 components, four were rated strong buy including two of the "too big to fail" money center banks Bank of America ( BAC) and Citigroup ( C). We showed 14 buy rated names including the other two "too big to fail" banks, JP Morgan ( JPM) and Wells Fargo ( WFC). There were only six rated hold.

In my last post covering these banks on May 2, Bull Market Will End Without Big-Bank Leadership the only buy rated name was Citigroup. Even so, there was enough technical momentum to power the banking index to a new multi-year high at $62.92 on May 30.

At the beginning of the year the strong buy rated banks were projected to gain between 12.2% and 14.4% over the next 12 months. At Monday's close the banking index was up more than 20% year to date. Today the projected 12 month gains are 4.5% and lower, which is a sign that profits should be taken.

The daily chart for the banking index ($61.00) shifts to negative given a close below its 21-day simple moving average at $60.37 with risk to the 50-day SMA at $57.78. A reversion to the mean is the 200-day SMA at $52.95. My monthly value level is $60.11 with weekly and semiannual risky levels at $62.26 and $62.66.

Chart Courtesy of Thomson/Reuters

The finance sector is 16.8% overvalued with the banking index up 18.9% leading the S&P 500, which is up 14.4%. The overall market remains under a ValuEngine valuation warning with 69.2% of all stocks overvalued.

Reading the Table

OV/UN Valued: 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: 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 time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength.

Here's an update to the regional banks I covered on May 2: Bank of America ( BAC) ($13.36 vs. $12.14 on May 2) set a multi-year high at $13.99 on May 31. My semiannual value level lags at $9.01 with a weekly pivot at $13.70 and monthly risky level at $14.54.

Citigroup ( C) ($51.23 vs. $45.87 on May 2) set a multi-year high at $53.56 on May 30. My annual value level is $33.19 with a monthly risky level at $54.06.

Fifth Third Bancorp ( FITB) ($17.92 vs. $16.75 on May 2) set a multi-year high at $18.73 on May 30. My monthly value level is $16.99 with a weekly risky level at $18.95.

Huntington Bancshares ( HBAN) ($7.62 vs. $7.06 on May 2) set a multi-year high at $7.95 on May 30. My monthly value level is $7.11 with a weekly pivot at $7.69.

JP Morgan Chase ( JPM) ($54.04 vs. $48.01 on May 2) set a multi-year high at $55.90 on May 30. My semiannual value level is $46.82 with a weekly pivot at $53.60, and monthly risky level at $54.71.

KeyCorp ( KEY) ($10.67 vs. $9.88 on May 2) set a multi-year high at $11.00 on May 22. My monthly value level is $10.19 with a weekly pivot at $10.87.

M&T Bank ( MTB) ($104.29 vs. $99.54 on May 2) set a multi-year high at $107.41 on May 22. My quarterly value level is $90.11 with a semiannual pivot at $105.62 with a monthly risky level at $108.89.

Regions Financial ( RF) ($8.98 vs. $8.43 on May 2) set a multi-year high at $9.48 on May 30. My monthly value level is $8.51 with a weekly risky level at $9.37.

SunTrust Banks ( STI) ($32.02 vs. $28.94 on May 2) set a multi-year high at $32.84 on May 30. My monthly value level is $29.71 with a weekly risky level at $32.84.

State Street ( STT) ($66.15 vs. $57.47 on May 2) set a multi-year high at $68.17 on May 29. My annual value is $54.80 with a weekly pivot at $66.06 and monthly risky level at $68.75.

US Bancorp ( USB) ($35.26 vs. $32.81 on May 2) set a multi-year high at $35.93 on May 28. My monthly value level is $32.77 with a quarterly pivot at $34.47.

Wells Fargo ( WFC) ($40.44 vs. $37.46 on May 2) set a multi-year high at $41.59 on May 30. My monthly value level is $38.11 with a weekly pivot at $40.35.

Zions Bancorp ( ZION) ($27.15 vs. $24.18 on May 2) set a multi-year high at $28.74 on May 30. My annual value level is $21.32 with a monthly pivot at $27.38 and a weekly risky level at $28.27.

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.