‘Big Four’ banks have reported, and one looks poised for a breakout

The Big Four have gotten a boost.

Shares of Bank of America, J.P. Morgan, Wells Fargo and Citigroup have all made meaningful gains following their respective earnings reports.

The SPDR S&P Bank ETF (KBE), which tracks the group, has followed suit, climbing 5% since last Thursday.

The positive action could be an indicator of what’s to come for the group, says Craig Johnson, senior technical research analyst at Piper Jaffray.

“Based upon the charts, we’re at an interesting inflection point,” he said Wednesday on CNBC’s “Trading Nation.”

“We’re getting very close to reversing the downtrend off of those March ’18 highs, and from our perspective, a reversal here would be a very positive sign for this index,” he said. “So, I like what I see here on the setup with the overall index chart.”

Besides the fact that the KBE’s trend relative to the S&P 500 has also broken through some upside resistance — a bullish move Johnson took as potential confirmation of the reversal — some individual names within the group are also getting stronger, he said.

“Take a look at the chart of J.P. Morgan,” which is a holding in KBE, Johnson said. “It looks like your classic kind of inverted head-and-shoulders pattern that’s starting to break out.”

While technicians largely view standard head-and-shoulder patterns as bearish signs that an uptrend could turn lower, inverted head-and-shoulder formations are seen as a downtrend could turn higher.

Johnson said the action was so positive that J.P. Morgan could climb as high as $150  over the next six months. That would be a nearly 33% increase from the stock’s Wednesday closing price of $119.68. It has climbed less than 8% in the last six months.

John Petrides, a portfolio manager for Tocqueville Asset Management’s wealth management group, preferred the Big Four and their peers to the financial sector’s smaller players.

“I think the large-cap, diversified money centers are attractive here from a valuation standpoint,” he said in the same “Trading Nation” interview. “Look at what they were able to do, navigating through what has been a flat to at times inverted yield curve over the past nine months.”

That resilience has also played out through the Federal Reserve’s recent interest rate cuts, a sign that the big banks can handily push past times of uncertainty, Petrides said.

“Twelve months ago, the U.S. 10-year [Treasury yield] was at 3.1%. Now it’s 1.7, and the banks just had really fantastic earnings and their loan portfolios are holding in,” he said. “So at current valuations, by and large, I think the large-cap money centers are quite attractive here.”

J.P. Morgan and the KBE fell by less than 1% on Wednesday. Citigroup fell by over 2%, Wells Fargo lost about 1%, and Bank of America gained more than 1%.

Disclosure: Piper Jaffray has received compensation for noninvestment banking securities related products or services from or has had a client relationship with Citigroup within the past 12 months. Piper Jaffray also makes a market in Citigroup, and will buy and sell the securities of Citigroup on a principal basis.

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