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Sunday, May 10, 2009

Charting the Banks

The stress test results came out after hours Thursday May 7 and bank stocks were immediately off to the races. The Fed is expecting the combined 19 banks will lose close to $600 Billion next year, and 10 of the nation's largest banks need to raise about $75 Billion in more capital.

Many people think the banks are overvalued as they've had amazing runs in the last 8 weeks, others think they're still undervalued. The charts from 8 of these financial institutions are below, and major resistance and supports are labeled. In a nutshell these charts show that these banks can continue to run (at these % increases) with the help of the overall market. If you hold any of these stocks and are thinking about lightening up, but don't know a good price point, these charts may help. If you are stuck between being bullish and bearish you may find some of the covered call option strategies on my blog to be useful.

The top 5 banks out of the 19 which need the most capital from greatest to least are: Bank of America (BAC) $33.9 Billion, Wells Fargo (WFC) $13.7 Billion, GMAC (GMA) $11.5 Billion, Citigroup (C) $5.5 Billion, and Regions Financial (RF) $2.5 Billion.

The charts for 8 of the Major financial institutions that received TARP are below:
American Express

AXP is currently in between its support and resistance, and with an up market should easily get to (if not break through) resistance at $30. If it breaks through $30 a share it could easily get to $34, and ultimately $36 short term. This is a very bullish chart, especially being in the middle of support and resistance, my guess it it will certainly get above $30 with the help of the market! Although Visa (V) and Mastercard (MA) are not exactly the same type of business as American Express, look for them to do well if AXP does.

Bank of America

BAC broke above resistance and if it can hold, it should be able to get to the next resisatnce fairly easy. Next resistance for BAC comes in at $16 and then $18. If it breaks through $16, watch it closely as it may come back down quickly, if it bounces off support at $16 once through it is a very good sign, and could easily get to $18 short term.

Bank of New York Mellon

BK has a very choppy chart (in terms of testing resistance/support). BK tested its short term resistance Thursday creating what looks to be a double top, before sliding back down and closing lower. BK could potentially rally up to the $38 range but first must get through resistance at $35, then $36.50.

Citigroup


C closed above $4 Friday, which is in critical range. As you can see from the chart it has tried to break above it several times- I can count 5. However investors are still uncertain if the government will convert their preferred stock into common staking almost 50% in the company. However the faster they fall the faster they rise, and Citi could potentially get to $7.50 before running into any resistance at all, then $9, and then even $14.50 before it settles down. Watch for C to run if it can get and hold above $4.50. However Citi getting that hot is very unlikely as stated.

Goldman Sachs


GS is a chart I like to see (especially as a shareholder). GS looks as if only two resistance points are in its way of getting back to $170 a share. The two come in at $140 and $151. If GS breaks through $140 anytime soon look for a quick rally to $151, and then if it can fill that gap up at $151 and break above it, watch and see how fast it can get to $170. Remember if they break through resistance, resistance now comes a support and if they break down through support they can easily get back down to where they came from.

JP Morgan Chase


JPM broke and closed above its resistance Friday. This is an extremely bullish sign, as it is through $36, it could easily get to $41 (there are a lot of minor resistance levels it may need to clear in between) and potentially to $42, before it could get above $45 a share (once again a lot of minor resistance levels in between the 42-45 range as well). JPM has a lot of minor and major resistance as it is said for be one of the stronger banks, and did not experience the downside many of the other financials did.

Morgan Stanley


MS looks as if it tried getting to its resistance around $29.50 Friday which is a bullish sign if the uptrend can continue. A rather sloppy chart, MS looks like if it could clear $30 and fill the gap to $32, it could easily get to $34, if it fills the next gap and gets to $36 MS could be smooth sailing until $40 a share.

Wells Fargo


WFC actually closed at its resistance which tends to be a bullish sign. WFC will need to clear $28.18 a share. If WFC can get above $28.18 a share, it could easily get to $29 before testing resistance at $31.25, then $32.50, and then $34.50. However there are plenty of minor resistance points between $31.25 and $34.50, which could make it tough for MS to achieve any of these higher levels.

I will be taking some profit, not by selling the stocks, but writing some covered calls on them possibly as much as 10% in the money. Some advice would be to take some profits if you're up, as any of these charts should be clear to you that the gains in the last month alone cannot keep going like this, and should be trimmed. However there is still a lot of money on the sidelines which could keep this rally going!


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