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Wells Fargo (WFC - Analyst Report) and JP Morgan (JPM - Analyst Report) release earnings Friday. They will cause the trade to focus on the financial sector. A scan of Zacks Rank #1 (Strong Buy) financial stocks drummed up some interesting looking chart formation. Despite a solid performance this year, a number of financial shares either remain in an uptrend or show signs of longer term base patterns. With financial earnings on the horizon, the sector may have a catalyst to follow through on some friendly looking technical formations. Let’s take a look at three names in alphabetical order:
BOFI Holdings (BOFI - Snapshot Report), Zacks Rank #1 (Strong Buy), is a holding company for Bank of Internet USA. It is consumer focused national savings bank and focused on originating and purchasing multi-family and single family loans for investment. It has a market cap shy of $850 mln. The stock has been on a roll lately and has posted a positive earnings surprise six straight quarters. BOFI is expected to report profits on November 14.
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Technically, the stock looks oversold based on the MACD [Moving Average Convergence Divergence] reading. Notice that the MACD is on the lower end of the one year range. More importantly, the uptrend is strong and the stock is consolidating in a triangle formation. The formation is a pause and usually a set up for a continuation of the rally. Movement over the $66 level would confirm a breakout of the triangle pattern and point to a new leg higher with a target into the $75 region. A break below the $60 area would negate the pattern and smell of a top.
Credit Suisse (CS - Snapshot Report), Zacks Rank #1 (Strong Buy), is a large bank and investment company which is showing both upward earnings estimate revisions and a favorable technical set up. The Zacks 2013 and 2014 Consensus Earnings per Share Estimates for CS have crept higher over the past 7 days. The 2013 and 2014 forecasts have each lifted $.02 to $2.93 and $3.61 respectively. The rise into earnings season looks like a positive development. Analysts seem to be warming toward the stock. What do they know? CS is expected to report profits on October 24.
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The chart displays a potential breakout above the trend line off the 2009 high and above the recent high just above $31.63 from October 2011. This suggests a potential bullish trend reversal. Furthermore, there is a “V” bottom set up which looks to be a base for a move into the $60 area and a retracement of the uptrend. There is layer of resistance around the $37.50 region off a set of 2010 lows which may provide a hurdle. Favorable earnings could excite technical and fundamental traders.
Deutsch Bank (DB - Analyst Report), Zacks Rank #1 (Strong Buy), is a large bank and investment company which is also showing upward momentum to earnings estimate revisions. The healing of economic conditions in Europe appears to be a positive dynamic and the market has shrugged off talk of weak trading revenues. Jitters about the health of Southern European banks and their bad debt levels, and their need for LTRO funding has also found limited spill over into DB. Over the last 7 days, EPS estimates have risen $0.11 to $5.99 for 2013 and $0.21 to $6.91 for 2014. DB is projected to report profits on October 29.
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Technically, DB has formed a large downward sloping bullish wedge formation extending from the 2010 highs. The formation argues for a retest of the 2010 high in the $80 area. The breakout has not been powerful, but has occurred along with a retest. There is a wall off resistance off the 2010 lows and 2012 high in the $53.00 area. Prices may need to work over this level to find more dynamic strength.
In addition to the wedge, prices have consolidated in recent weeks in a small triangle pattern which suggests consolidation for a push higher on a rally over $50. In contrast, a break below $42.50 would be a sign of weakness. The triangle pattern presents a pattern in a pattern.
In conclusion, keep an eye on BOFI, CS, and DB in the coming weeks. Their charts suggest upside may be in the bank.