This was a premium article (weekly deep dive) that has now been made public
Financial sector remains under pressure as the FED continue to hike rates, making it harder for a lot of banks to meet their debt obligations in the form of bonds. It has taken a heavy toll on the sector in recent weeks which has opened the sector up to undervaluation.
Filtering the market down we can see RRG is showing a clear sector (XLF/ IXM, Blue line) in the rotation whilst it remains deeply in the lagging quadrant. This is a reflection of the recent crisis in the banking sector however from a technical perspective this is what we like to see in term of sector rotation as now the Finance sector has potential to outperform in the coming weeks / months.
Particularly when you look at (fig.2) we can see the diversified and regional banks are showing the the highest rating of undervaluation when filtered with PE.
SP500 RRG (relative rotation graph) (fig.1)
SP500 Heatmap (filtered by P/E) (fig.2)
Diversified Banks
JP.Morgan Chase (JPM, $124.91)
Although technically undervalued, we are seeing nothing from a technical perspective to indicate a buy as momentum remains firmly bearish. With that in mind, be cautious of moves lower to the $100 - $110 region which could provide a better opportunity to buy from (assuming we get some form of confirmation of a momentum shift).
Bank of America (BAC, $27.14)
Approaching weekly demand zone around $23-$25, gives the bank potential for a consolidation phase. If we can hold above weekly support of $18, bias will remain bullish.
Stochastic's are heavily oversold pointing towards a relief phase as MACD begins to flatten slightly - we will watch the market for any 'buy' signals on anything above $18.
Stop loss: $18
Targets: $$37.50 / $50
Citigroup (C, $43.11)
Another banking stock approaching support but appears premature to buy. Stochastics are heavily oversold giving the possibility of a relief however daily MACD shows little signs of the bears slowing for the time being. Once we see MACD starting to flatten we can then begin to await a buy opportunity.
Citigroup has essentially been rangebound since 2016, within the range of $34 -$80. This means we are approaching the bottom of this range once more which installs confidence in a bullish move in the coming quarter. In a similar fashion to other diversified banks, one last move to the downside sub $40 would provide better value and drive the market into a zone of interest where we can await a 'buy' signal.
Stop loss: $33
Targets : $55/ $80
REGIONAL BANKS
Trust Financial Corp (TFC)
TFC is approaching Covid Lows after a heavy sell off. MACD has snapped lower in a similar fashion to 2020 prior to the post Covid recovery.
Stochastic's remain heavily oversold pointing towards a relief rally.
Stop loss: $20 (generously below the covid lows if the market can't hold critical support)
Targets: $41, $51
PNC Financial Services Group Inc ($124)
As we approach the supply zone between $100 - $110, PNC remains on our watchlist for a potential buy. Like many other banking stocks, stochastic are heavily oversold and the MACD is starting to flatten off. We have clear support in the form of Covid Lows at $80 which I appreciate is still nearly 30% away from current market price, giving support to awaiting a clear signal from either MACD or an upturn in stochastic confirming this bearish move is coming to an end. Current market price of $124 does not provide either good value or a good risk:reward ratio for a move higher.
Stop loss: $80
Targets: $168
As a word of caution - the finance sector remains high risk under current circumstances, which is good for offering undervaluation, however given the macro landscape, its not guaranteed there won't be other fatalities.
Some of the best opportunities are at times of fear - however remain diversified at all times and manage risk appropriately.
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