Regional Banks' Weak Performance Is a Warning

NEW YORK (TheStreet) -- At the beginning of the year Wall Street expected our nation's banks to lead the stock market higher. This was the case until the Financial Sector SPDR Fund (XLF) continued higher and peaked at $22.16 on Jan. 15 then declined to $20.50 on Monday just above its 200-day simple moving average at $20.39.

With Monday's stock market weakness the percentage of overvalued stocks fell to 72.6% from 79.7% on Friday still above the valuation warning threshold of 65%. The percentage of stocks overvalued by 20% or more fell to 29.4% from 42%.

The finance sector is 17.1% overvalued with an equal-weight rating as 82.7% of all stocks in the sector have hold ratings according to www.ValuEngine.com.

Whenever I believe a market or sector is vulnerable I look to the weekly chart profile. The weekly chart of the Financial Sector SPDR Fund XLF ($20.53) shows that the rally failed at the 61.8% Fibonacci retracement of the decline from the first half high of 2007 to the low in March 2009. This level is $22.07 vs. the Jan. 15 high at $22.16. Friday's close ($21.06) was below the five-week modified moving average at $21.42 with its 12x3x3 weekly slow stochastics declining below 80.00 which defines a negative chart. My semiannual value levels are $20.24 and $19.44 with a monthly pivot at $21.42 and quarterly risky level at $23.38.

Courtesy of MetaStock Xenith

The best performing regional bank year to date is one of the four 'too big to fail' money center banks, Bank of America (BAC) with a year to date gain of 5%. In second place and the only other of the 24 regional banks with a gain is PNC Financial (PNC) up just 1.1%.

The worst performing regional banks are First Niagara (FNFG) with a year to date decline of 22.6% followed by State Street (STT) with a decline of 12%. On this weakness both have been upgraded to buy from hold.

Bank of America ($16.35 vs. $15.57 on Dec. 31 up 5%) beat EPS estimates by 3 cents earning 29 cents on Jan. 15. The stock reacted positively setting a new multiyear intraday high at $17.42 that day then dipped to $16.06 on Jan. 27. The weekly chart shifts to negative with a close this week below its five-week modified moving average $16.24 with its 200-week SMA $11.45. My monthly value level is $16.17 with a weekly pivot at $17.01 and quarterly risky level at $18.48.

BB&T Corp (BBT) ($36.41 vs. $37.32 on Dec. 31 down 2.4%) matched EPS estimates earning 72 cents a share on Jan. 16. The stock traded to a multiyear intraday high at $39.34 on Jan. 21 then faded to $36.34 on Monday. The weekly chart shifts to negative with a close this week below its five-week MMA at $37.01 with its 200-week simple moving average at $29.18. My semiannual value levels are $36.05 and $35.32 with a monthly pivot at $37.76 and weekly and quarterly risky levels at $39.84 $41.09.

Citigroup (C) ($46.34 vs. $52.11 on Dec. 31 down 11.1%) missed EPS estimates by 18 cents earning 76 cents a share on Jan. 16. The stock set a multiyear intraday high at $55.28 on Jan. 9 and gapped lower in reaction to the earnings miss trading as low as $46.19 on Monday and is now below its 200-day SMA at $50.35. The weekly chart is negative with its five-week MMA at $49.99 and its 200-week SMA at $40.01. My monthly pivot is $47.04 with semiannual and weekly risky levels at $48.06 and $50.74.

Commerce Bancshares (CBSH) ($41.88 vs. $44.91 on Dec. 31 down 6.7%) missed EPS estimates by 2 cents earning 69 cents a share on Jan. 14. The stock traded to an all-time intraday high at $46.49 on Jan. 22 then slumped to $41.66 on Monday below its 200-day SMA at $42.72. The weekly chart is negative with the five-week MMA at $43.98 and its 200-week SMA at $36.09. My semiannual pivot is $41.98 with a quarterly pivot at $44.51 and monthly risky level at $45.18.

Comerica (CMA) ($44.01 vs. $47.54 on Dec. 31 down 7.4%) missed EPS estimates by 12 cents earning 62 cents a share on Jan. 17. The stock traded to a multi-year intra-day high at $49.95 on Jan. 22 then declined to $43.96 on Monday still above its 200-day SMA at $42.06. The weekly chart is negative with its five-week MMA at $45.94 and its 200-week SMA at $35.11. My semiannual pivot is $44.96 with quarterly and semiannual risky levels at $48.56 and $49.39.

Capital One (COF) ($68.87 vs. $76.61 on Dec. 31 down 10.1%) missed EPS estimates by 6 cents earning $1.49 a share on Jan. 16. The stock traded to a multi-year intra-day high at $78.49 on Jan. 7 then declined to $68.59 on Monday still above its 200-day SMA at $67.53. The weekly chart is negative with its five-week MMA at $71.95 and its 200-week SMA at $52.94. I show no nearby value levels with semiannual and weekly risky levels at $73.98 and $74.40.

First Niagara ($8.22 vs. $10.62 on Dec. 31 down 22.6%) matched EPS earning 20 cents a share on Jan. 24. The stock set its multiyear intraday high at $11.34 on Nov. 25 then gapped below its 200-day SMA at $10.30 in reaction to its earnings guidance to a low of $8.19 on Monday. First Niagara is one of only two regional banks that have been upgraded to buy from hold. The weekly chart is negative but oversold with its five-week MMA at $9.60 and its 200-week SMA at $10.56. My semiannual value level is $7.25 with a weekly pivot at $8.85 and annual and semiannual risky levels at $9.70 and $10.47.

Huntington Banc (HBAN) ($8.72 vs. $9.65 on Dec. 31 down 9.6%) beat EPS estimates by 2 cents earning 19 cents a share on Jan. 16. The stock traded to a multiyear intraday high at $9.91 on Jan. 22 then declined to $8.66 on Monday till above its 200-day SMA at $8.51. The weekly chart is negative with its five-week MMA at $9.24 and its 200-week SMA at $6.72. My semiannual pivot is $8.80 with monthly and quarterly risky levels at pivot at $9.73 and $9.83.

JP Morgan (JPM) ($54.31 vs. $58.48 on Dec. 31 down 7.1%) beat EPS estimates by 9 cents earning $1.40 a share on Jan. 14. The stock traded to an all-time intraday high at $59.82 on Jan. 16 then declined to $54.20 on Monday still above its 200-day SMA at $53.91. The weekly chart is negative with the five-week MMA at $56.11 and its 200-week SMA at $43.15. Monthly and semiannual value levels are $54.01 and $51.64 with weekly and quarterly risky levels at $57.96 and $63.43.

Peoples United (PBCT) ($13.84 vs. $15.12 on Dec. 31 down 8.5%) matched EPS estimates earning 20 cents a share on Jan. 16. The stock traded to a multiyear intraday high at $15.70 on Jan. 9 then declined to $13.80 on Monday below its 200-day SMA at $14.54. The weekly chart is negative with the five-week MMA at $14.55 and its 200-week SMA at $13.16. My semiannual value levels are $12.53 and $10.55 with a quarterly pivot at $14.26 and annual and monthly risky levels at $15.13 and $15.47.

PNC Financial ($78.43 vs. $77.58 on Dec. 31 up 1.1%) beat EPS estimates by 5 cents earning $1.69 a share on Jan. 16. The stock traded to a multiyear intraday high at $84.42 on Jan. 22 then slipped to $78.32 on Monday still above its 200-day SMA at $74.23. The weekly chart shifts to negative with a close this week below its five-week MMA at $78.72 and its 200-week SMA at $62.47. My semiannual and annual value levels are $76.54 and $66.47 with a quarterly pivot at $78.78 with monthly and weekly risky levels at $79.81 and $81.33.

SunTrust Banks (STI) ($36.40 vs. $36.81 on Dec. 31 down 1.1%) beat EPS estimates by 7 cents earning 77 cents a share on Jan. 17. The stock traded to a multiyear intraday high at $40.21 on Jan. 22 then declined to $36.23 on Monday above its 200-day SMA at $33.88. The weekly chart shifts to negative with a close this week below its five-week MMA at $36.98 with its 200-week SMA at $27.06. My semiannual value level is $36.17 with a semiannual pivot at $36.34 and monthly and weekly risky levels at $37.14 and $38.85.

Wells Fargo (WFC) ($44.43 vs. $45.40 on Dec. 31 down 2.1%) beat EPS estimates by 2 cents earning $1.00 a share on Jan. 14. The stock traded to an all-time intraday high at $46.83 on Jan.21 then dipped to $44.32 on Monday above its 200-day SMA at $42.39. The weekly chart shifts to negative with a close this week below its five-week MMA at $45.00 with its 200-week SMA at $32.97. My semiannual value levels are $42.32 and $40.96 with a monthly pivot at $46.11 with weekly and quarterly risky levels at $46.56 and $49.48.

Overvalued/Undervalued: The only undervalued regional bank is Peoples United by 5%. The most overvalued is Fifth Third Bank (FITB) overvalued by 35.6%.

ValuEngine Ratings: The only banks with buy ratings are First Niagara and State Street. All others ended 2013 with hold ratings and those ratings remain the same.

Last 12 Month Returns: All 24 regional banks are higher over the last 12 months led by Bank of America with a gain of 42.4%. The weakest performer was First Niagara with a gain of just 4.5%.

Forecast 12 Month Return: The percentage ranges from a loss of 0.1% for Regions Financial (RF) to a gain of 6.5% for First Niagara.

12 Month Trailing Earnings Per Share: JP Morgan has the lowest P/E ratio at 9.1, while Northern Trust (NTRS) has the highest price-to-earnings ratio at 19.3.

200-Day Simple Moving Averages: At the end of 2013 all 24 regional banks were above their 200-day simple moving averages. My market call for 2014 is that the major equity averages will decline to their 200-day SMAs on a "reversion to the mean." The Dow Industrial Average ended Monday below its 200-day SMA at 15,470. This prediction also applies to all regional banks and after a month and a day in 2014 eight are below their 200-day SMAs as shown in red within the table.

How to use Value Levels: If you are looking to buy bank stocks or add to long positions, my buy-and-trade methodology recommends that you employ good-until-cancelled GTC limit orders to buy weakness to a value level shown in the table. The value levels followed by 'W' are for this week only, 'M' are for February only, a 'Q' applies until the end of March. Those followed by an 'S' will apply until the end of June. Those followed by an 'A' will apply for all of 2014.

How to use Pivots - A pivot will likely be a magnet during the time frame shown by the letter; 'W' are for this week only, 'M' is for February only, a 'Q' applies until the end of March. Those followed by an 'S' will apply until the end of June. Those followed by an 'A' will apply for all of 2014. If a value level or risky level is violated during its time horizon that level becomes a pivot and has an 85% chance of being re-tested during its time horizon.

How to use Risky Level - If you are looking to book profits on bank stocks, my buy-and-trade methodology recommends that you employ GTC limit orders to sell strength to a risky level shown in the table. For most of the stocks I show two risky levels in the table. The risky levels followed by an 'W' are for this week only, 'M' are for February only, a 'Q' applies until the end of March. Those followed by an 'S' will apply until the end of June. Those followed by an 'A' will apply for all of 2014.

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

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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

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