The 2 worst big-bank stocks

New credit downgrades to a number of banks by S&P and still-negative chart patterns mean Bank of America and Citigroup are still very much out of favor.

By MoneyShow.com Nov 30, 2011 2:43PM

Image: bank ATM (© Image Source/Corbis/Corbis)By Tom Aspray, MoneyShow.com


After the stock market close on Tuesday, S&P downgraded 15 big banks to reflect the results of its new credit criteria. Though many of the banks had been prepared for a downgrade, others immediately wondered about the impact on a fragile stock market.


The low-volume decline last week followed by Monday’s strong surge has kept the rally from the October lows intact, but it order to reverse the negative momentum, a strong weekly close is needed.


Even if the stock market’s intermediate-term uptrend has resumed, there are still sectors, and more importantly, individual stocks that should be avoided, and the relative performance, or RS analysis, on these two bank stocks in particular remains negative.

Click here to enlarge


Chart Analysis: The daily chart of the Spyder Trust (SPY) shows that Friday’s low of $116.34 was fairly close to the 61.8% Fibonacci retracement support at $115.83, which was calculated from the October lows.

  • There is next resistance for SPY at $122-$122.80 with much stronger resistance above $124. A close above $124.50 should signal the correction is over
  • The daily downtrend, line a, is now at $127.70
  • The NYSE Advance/Decline (A/D) line dropped last week to test the support from the early-September highs, line c. The A/D line has turned up sharply and has moved back above its weighted moving average (WMA)
  • Initial support for SPY now stands at Monday’s gap in the $117.70-$118.80 area

The Select Sector SPDR - Financial (XLF) violated its 61.8% support at $12.18 last week, but is so far holding above the October lows at $10.95.

  • RS analysis has been negative for most of the year, making a series of lower lows, including the new lows put in on Tuesday
  • The weak action of the RS line has forecasted lower prices in advance and continues to paint a negative picture
  • Daily OBV did manage to briefly overcome its downtrend, line f, in November, but has now dropped back below its weighted moving average, which has flattened out
  • There is first resistance for XLF at $12.50 with much stronger resistance above $13

Bank of America (BAC) dropped to new lows Tuesday at $5.03, which was just below the Oct. 4 low of $5.13. BAC made a high at $15.31 on January 14 and is down 67% for the year. Though it is possible that the stock will respond positively to the S&P news, there is much work to be done before it can turn positive.

  • There is first strong resistance at $6.00-$6.50 with major resistance at $7.43, which was the late-October high
  • The RS line started a new downtrend in March and has continued to make new lows
  • The RS broke support (line b) on Nov. 9, which preceded the new low in prices by almost two weeks
  • Daily OBV formed a positive divergence at the October lows, line c, but this support has now been broken
  • Weekly OBV (not shown) failed to move above its declining weighted moving average and has also made new lows

Citigroup (C) closed below its 61.8% Fibonacci support at $26.36 on Nov. 17, which warned of the recent decline. So far, it is holding above the October lows at $21.40 (line d) and had a yearly high of $51.50.

  • The RS line broke support, line e, last week, which does project an eventual drop below the October lows
  • The daily RS line would now need to surpass the October high to turn positive
  • The OBV bottomed in August before forming higher lows in September. This bullish divergence support, line f, was also broken last week
  • There is first resistance now at $27 with much stronger resistance in the $28.50-$30 area

What It Means: The stock index futures are sharply higher in early-Wednesday trading on news of coordinated action by the world’s main central banks to lower the interest rate on dollar swaps. Therefore, the S&P downgrade should have little effect on the stock market today.


Since late February (see “Don’t Bank on Bank of America, Citigroup”), the technical outlook for these two big banks has been negative and they should continue to be avoided.


How to Profit: A strong weekly close in the Spyder Trust (SPY) should set the stage for a further rally into the end of the year. As I mentioned last week, I continue to favor small-cap stocks as we head into January.


See related5 Small-Caps with Growth Potential


The market is still vulnerable to further Euro-induced shocks, so be sure to have your stops in place and don’t let a profitable position turn into a loss.


2Comments
Dec 1, 2011 12:43AM
avatar
Tom Aspray is an IDIOT !!  BAC & C = Buy, Buy, Buy !!  Buy them now and in 5 years you will be filthy rich !! Soon BAC & C will be buying back shares bigtime and raising their dividends regularly !!!!!!!!!$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Dec 1, 2011 12:22AM
avatar
Long term investors which the market needs are reluctant to invest as long as speculators and short sellers continue to dominate.  No question that the major us banks  are quickly improving and JPM and WFC are already in good shape, with stock prices that make them an absolute bargain.  Buy small amounts and dollar cost average in and in 12 to 24 months you will have made a kings ransom.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

114
114 rated 1
278
278 rated 2
474
474 rated 3
641
641 rated 4
639
639 rated 5
663
663 rated 6
640
640 rated 7
499
499 rated 8
284
284 rated 9
122
122 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
COPCONOCOPHILLIPS9
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
KOGKODIAK OIL & GAS Corp9
CVXCHEVRON CORPORATION8
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.