Friday, May 24, 2024

Regional Banks Need Healthy Earnings to Offset Balance Sheet Concerns

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Wall Street and most buy-side analysts expected regional banks to benefit from higher interest rates as soon as the Federal Reserve began to raise interest rates. The Fed raised the federal funds rate on Dec. 16 but regional bank stocks did not rally; instead, they declined into correction territory more than 10% below multiyear or all-time highs set in July 2015.

Between this Friday and Jan. 21 BB&T Corp (BBT - Get Report) , M&T Bank (MTB - Get Report) , PNC Financial (PNC - Get Report) , SunTrust (STI - Get Report) and U.S. Bancorp (USB - Get Report) report earnings for the fourth quarter of 2015.

From a technical standpoint, higher interest rates have not been positive for regional banks, based on data from the Federal Deposit Insurance Corporation and comments from the FDIC Chairman, Martin Gruenberg. That's why I said it was time to take profits on regional banks. This was based on continued FDIC concerns about credit risks as banks extend out the yield curve to pick up net interest margins.

Here's a scorecard for the five key regional banks.

Let's focus is on the daily charts as these stocks cascade below their Fibonacci retracements from their all-time or multiyear highs set in July to their "flash crash" lows of Aug. 24 or lower later in 2015.

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Here's the daily chart for BB&T Corp.


Courtesy of MetaStock Xenith

The daily chart for BB&T shows the stock ended 2015 below its 50% Fibonacci retracement of $38.07. The horizontal lines are the retracements from the multiyear high of $41.90 set on July 23 to the 2015 low of $34.24 set on Oct. 2.

As 2016 began the stock plunged below its 38.2% retracement of $37.17. Then, on Jan. 7, the stock gapped below its 23.6% retracement of $36.05. The stock closed Tuesday at $34.90 in correction territory 16.7% below the July 23 high. The stock is just 1.9% above the low set on Oct. 2.

Note in a "sell on strength" strategy investors could have reduced holdings at its 61.8% retracement of $38.98 between Nov. 6 and Dec. 7.

Investors looking to buy BB&T should place a good till canceled limit order to buy the stock if it drops to $32.71, which is a key level on technical charts until the end of 2016.

BB&T is scheduled to report quarterly earnings before the opening bell on Jan. 21 and analysts expect the bank to earn 70 cents a share.

Here's the daily chart for M&T Bank Corp.


Courtesy of MetaStock Xenith

The daily chart for M&T shows the stock ended 2015 below its 50% Fibonacci retracement of $122.74. The horizontal lines are the retracements from the multiyear high of $134 set on July 23 to the 2015 low of $111.50 set on Oct. 2.

As 2016 began the stock plunged below its 38.2% retracement of $120.08. Then, on Jan. 6, the stock crashed below its 23.6% retracement of $116.79. The stock closed Tuesday at $110.49 in correction territory 19.2% below the July 23 high. The stock set a lower low of $108.32 on Jan. 11.

In a sell on strength strategy investors could have reduced holdings at its 61.8% retracement of $125.40 between Oct. 28 and Dec. 17.

Investors looking to buy M&T should place a good till canceled limit order to buy the stock if it drops to $95.68, which is the April 2013 low.

M&T is scheduled to report quarterly earnings on Jan. 19 and analysts expect the bank to earn $1.95 a share.

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