Profit-taking in Financials Ahead of Stress Test Report

With the Fed announcing the results of the “stress tests” for America’s top banks later this week, do pullbacks in this sector today anticipate buying on the news tomorrow?

According to one report, Moody’s Investors Service has already handicapped winners (I’m looking at you, American Express) and losers (unsurprisingly, Bank of America), while other agencies are

looking at the potential for big dividend boosts in stocks like JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC). So here’s a technical take on how the bank stocks are shaping up in the days

ahead of stress test.

The pullback in Region’s Financial (NYSE: RF) stands out in part because the stock did not enjoy the three-day rally that most regional banks participated in last week. As such, the selling in the

sector on Monday was more than enough to turn traders and investors against the stock, sending shares lower by nearly 3%.

Now technically oversold for the first time since climbing into bull market territory in late January, shares of Regions Financial Corp earned an intraday upgrade to 7 out of 10 (putting the stock

at the upper end of our “neutral” category), and a positive edge in the short-term of three-quarters of a percent.

Down more than 2% ahead of trading on Tuesday are shares of Suntrust Banks Inc. (NYSE: STI). While not yet in technically oversold territory and earning neutral, 6 out of 10 ratings, shares of STI

are trading near short term lows and, like Regions Financial, have a short-term, positive edge of three-quarters of a percent. STI was trading oversold less than a week ago, shortly before a three

day bounce that took the stock higher by more than 4%.

Many of these banks are coming off of short-term moves to the upside after pulling back to technically oversold territory a week ago. And the selling in some of these shares, especially where that

selling has been relatively slight, likely represents short-term profit-taking in the sector (note that both Fifth Third Bancorp and Wells Fargo were among the bank stocks highlighted in 7 Stocks

You Need to Know last week.)

JPMorgan Chase, mentioned above, is another bank stock that has begun to pullback from recent highs. JPM is in neutral territory after selling off by a little over 1% in Monday’s session. As such

the stock has a mild edge of nearly half a percent and neutral, 5 out of 10 ratings. The stock is up more than 8% since it crossed back above its 200-day moving average early in the second half of

January, but has not closed in technically oversold territory since then. In fact, shares of JPM have not finished convincingly oversold since the major downturn into the autumn lows in late

November 2011.

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David Penn is Editor in Chief of