Why Bank Shares Are a Problem for the Stock Market

NEW YORK (TheStreet) -- Major banks are under the scrutiny of Attorney General Eric Holder, who recently warned on the Department of Justice Web site, "There is no such thing as too big to jail." This warning obviously includes the four "too big to fail" money center banks that are in the KBW Banking Index.

We crunched the numbers for all 24 components of the banking index before earnings in "Crunching the Numbers on Bank Earnings Season: JP Morgan, Wells Fargo, Citi."

Looking at today's second table below, only nine of the banks in the index beat analysts' earnings per share estimates, while three matched estimates and 12 missed. This table also shows that as of Tuesday's market close, 23 of 24 of the bank stocks have traded lower since April 9. They have been led by Bank of America (BAC) ($14.73), down 11.4%; Fifth Third Bank (FITB) ($20.28), down 10.3%; and JPMorgan Chase (JPM) ($53.34), down 10%.

Citigroup (C) ($46.36) is down 1.7% since April 9, and Wells Fargo (WFC) ($49.09) is down just a penny.

We often have said that you cannot have a bull market for stocks with the major banks in a bear market, and the weekly chart for the banking index ($67.13) is now negative, with the five-week modified moving average at $69.01. When you look at the first table, please note that 22 of the 24 regional banks are below their five-week MMAs. Also note that 20 have declining 12x3x3 weekly slow stochastics.

Here are updated profiles for the four "too big to fail" money center banks that are likely on Eric Holder's short list of being "not to big to jail."

Bank of America ($14.73, down 11% since April 9) is trading below its 200-day simple moving average at $15.50. Its May 6 low at $14.72 is a new low for 2014. The weekly chart is negative with the five-week modified moving average at $15.89. The downside risk is to its 200-week SMA at $11.47.

Citigroup ($46.36, down 1.7% since April 9) has been below its 200-day SMA at $49.99 since March 26 but is above its April 11 intraday low at $45.18. The weekly chart is neutral with the five-week MMA at $47.61 with rising 12x3x3 weekly slow stochastics. This usually means that weakness should hold its 200-week SMA at $40.49. This week's value level is $45.59 with semiannual and quarterly risky levels at $48.06 and $49.61, respectively.

JPMorgan Chase ($53.34, down 10% since April 9) broke below its 200-day SMA at $55.59 on Monday, setting a new 2014 intraday low at $53.32 on May 6. The weekly chart is negative with its five-week MMA at $56.09. Semiannual and annual value levels are $51.64 and $49.59, respectively, with quarterly and monthly risky levels at $54.47 and $61.42, respectively.

Wells Fargo ($49.09, down a penny since April 9) set an all-time intraday high at $49.97 on March 21. The weekly chart shifts to neutral given a close this week below its five-week MMA at $48.65 as the bank's 12x3x3 weekly slow stochastic is declining. Quarterly and semiannual value levels are $47.33 and $42.32, respectively, with a weekly pivot at $49.96 and monthly risky level at $50.97.

Crunching the Numbers With Richard Suttmeier: Moving Averages & Stochastics

This table provides the technical status for the stocks profiled in today's report.

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 a reading of oversold, rising, overbought, declining or flat.

Interpretations: Stocks below a moving average are listed in red.

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether 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 level and as a "reversion to the mean" over a rolling three- to five-year horizon. (Even Apple (AAPL) 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 level, 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.)

Crunching the Numbers With Richard Suttmeier: Earnings & Where to Buy & Where to Sell

This table presents the EPS estimates including date and before or after the close, and where to buy on weakness and where to sell on strength.

"EPS Date" is the day the company reports its quarterly results.

"EPS Estimate" is the EPS estimate from Wall Street analysts.

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-'til-canceled 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.

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This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

>>Read More: One Factor Driving JPMorgan Chase Lower

>>Read More: Trading Bank Earnings, Part 1

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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