NEW YORK (TheStreet) -- Shares of the biggest U.S. banks have staged a rebound over the past month, rising between 1.1% and 5.2%, but second-quarter earnings season (which begins next month) is likely to pressure these stocks anew.
Data from the recently released Quarterly Banking Profile from the Federal Deposit Insurance Corp. don't bode well for second-quarter earnings. FDIC-insured financial institutions recorded net income of $37.2 billion in the first quarter, down 7.6% from the first quarter of 2013. The FDIC attributed the decline in earnings mainly to a 10.7% decline ($7.1 billion) in noninterest income, which consists of a reduced decline in reserves for losses and reduced sales of assets.
Banks are holding "other real estate owned," making the bet that values of these nonperforming assets will increase in value. Income has been hurt by reduced mortgage activities and by a decline in trading profits.
In my view, all of these trends will continue in the second quarter and are likely lead to disappointing results.
Before the banks stocks' latest rebound, most had sold off in the wake of first-quarter earnings reports (released between April 10 and April 30). I track the large money center and regional banks using the KBW Bank Index, which consists of 24 of the largest U.S. banks.
Only nine of the KBW Bank Index's components beat analysts' earnings per share estimates, while three matched estimates and 12 missed. Wells Fargo (WFC - Get Report) was the only bank that broke even in term of price change between our pre-earnings post of April 10 and our postearnings post of May 7, "Why Bank Shares Are a Problem for the Stock Market."
Here are our updated profiles for the four "too big to fail" money center banks. Our "Crunching the Numbers" tables for all 24 components of the regional banking index follow on pages 2 and 3.
Bank of America ($15.21), up 3.3% since May 6. The stock traded as low as $14.37 on May 16 and has been below its 200-day simple moving average at $15.52 since April 28.
Bank of America is the only stock in the KBW Bank Index with a negative but oversold weekly chart. Its five-week modified moving average at $15.34, weekly and semiannual value levels are $13.81 and $10.69, respectively, and quarterly and monthly risky levels at $15.53 and $17.59, respectively.
The weekly chart is positive with its five-week MMA at $47.61. Holding a semiannual pivot at $48.06 indicates potential strength to monthly and quarterly risky levels at $49.38 and $49.61, respectively. Weekly and annual value levels are $47.39 and $21.86, respectively.
JPMorgan Chase ($55.60), up 4.2% since May 6. The stock has been trading back and forth around its 200-day SMA at $55.50 since April 11, going as low as $52.97 on May 16.
The weekly chart is positive given a close this week above its five-week MMA at $55.48. Quarterly and semiannual value levels are $54.47 and $51.64, respectively, with a monthly risky level at $61.03.
Wells Fargo ($51.09), up 4.1% since may 6. The stock set an all-time intraday high at $51.17 on June 2 and has been well above its 200-day SMA at $45.43.
The weekly chart is positive but overbought with its five-week MMA at $49.71. Weekly and quarterly value levels are $49.44 and $47.33, respectively, with a monthly risky level at $53.08.
Your investment policy among these stocks depends on whether you are a buyer on weakness or a seller of strength. We advocate using a good-'til-cancelled limit order to buy weakness to a value level or to sell strength to a risky level.
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.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff