Morning Call: Bank Earnings Unable to Stoke Rally

Futures have been up 3-5 handles throughout the morning, but now look set for a lower open. The market isn’t getting much help from JP Morgan (NYSE:JPM) and Wells Fargo (NYSE:WFC), which are trading lower after earnings. Banks have strong over the past few weeks, playing an instrumental part in the rally, but I don’t think these results will be enough to tack on additional gains.

The Oscillator is still at around -30, which is only mildly oversold. Markets could try to bounce like yesterday, but things still feel heavy. Use 1430-1432 to trade against if you’re looking for some type of bounce. If you’re looking to stay with shorts, which have been working well, a break below this level could give a move down to the 50-day at the 1422-1427 zone. There’s been a big divergence the past few weeks between weak and strong stocks, making tactical trading and positioning more important than ever.

JP Morgan (NYSE:JPM) saw its profit rise 34%, topping Wall Street expectations. However, it doesn’t look like the report was enough to push JPM above the recent range, as the stock is trading lower this morning. Among his most notable comments in the earnings call, CEO Jamie Dimon stated that he thinks ‘the housing market has turned the corner.” The largest US bank by assets revealed massive losses from its London Whale debacle back in May, but looks to be on the road to redemption, having filled that gap. Let’s see how JPM acts during the session today.

Wells Fargo’s (NYSE:WFC) report was much less rosy that JPM’s. The bank actually beat Wall Street EPS consensus estimates by a penny, but fell slightly short on revenues. WFC has shown relative strength in the banking sector throughout the financial crisis and recovery, but is set to open more than 3% lower this morning. This morning’s action in both WFC and JPM proves that after big runs leading into earnings season, stellar earnings reports were priced into the banks. Small beats may not be enough to push these stocks higher.

Right now, the market is not at extreme oversold levels, but extended enough to the downside that it’s hard to put on new shorts given the more macro strength we have seen over the last few months. Traders will be watching the 50-day MA closely on the S&P today for a possible area to test longs. If we get a close below that level, deeper support levels around 1400 may come into play over the next week.

Scott Redler has been trading equities for more than 10 years and has more recently received widespread recognition from the financial community for his insightful, pragmatic approach. He began his career as a broker and venture capitalist where he was able to facilitate relationships that led him into trading. Beginning his trading career at Broadway Trading in 1999, Scott moved on with Marc Sperling to Sperling Enterprises, LLC after establishing himself as one of the best young traders in the firm. As a manager at Sperling Enterprises, he maintained his status as a top trader in the industry while working closely with all traders in the firm to dramatically increase performance. Scott has participated in more than 30 triathlons and one IronMan triathlon, exhibiting a work ethic that also defines his trading. His vast knowledge and meticulous attention to detail has led to regular appearances on CNBC, Fox Business and Bloomberg, and he has been quoted in the Wall Street Journal and Invest.

Scott is currently the Chief Strategic Officer of T3 Live and is a Registered Associated Person of T3 Trading Group, LLC.

*DISCLOSURES: Scott Redler is short SPY.

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