Bank of America is a bearish, limited-risk idea ahead of earnings: it has underperformed the market and declined over the past three months, which usually signals bad news into earnings, and offers the best risk-to-reward for a bearish financials bet; JPMorgan's softening suggests weaker names may fall further.
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Wells Fargo, US Bancorp, Citigroup, First Fifth Third, M&T, Goldman Sachs, Bank of America, Citizens, PNC. Almost every stock, as you can see here below. Look at the number of stocks in the financial sector that underperform the market and have a relatively weak performance before earnings announcements.
Now, as you can see, "US Bancorp", "Bank of America", "JP Morgan". JPMorgan just announced its results this morning, so that doesn't apply here. Progressive, BNG, Wells Fargo, Citigroup, Interactive Brokers.
There are a lot of names on my downward list, aren't there? These are stocks with relatively weak strength. Its performance has been poor over the past three months. So, when you have a poorly performing stock that has continued to decline over the previous quarter, that's not a good sign ahead of earnings season.
It is not a guarantee that the stock will decline, but statistically, if a stock is underperforming and its results are poor, this is usually a sign that there is some potentially bad news ahead as the earnings season approaches.
So, as you can see, US Bancorp and Bank of America are at the top of the list, giving me some opportunity to take a primarily bearish view with limited risk ahead of earnings.
Look at Bank of America. I risk $1000 to earn $2000.
This system does all the work for you at once in a few seconds, telling you that US Bancorp and Bank of America will give you the best risk-to-reward ratio if you are pessimistic about the financial sector and worried that these banks may perform poorly.
I think JPMorgan's earnings report this morning confirms that the financial sector is not the booming sector it was a few quarters ago. Fixed income trading declined, even though JPMorgan's results came in slightly better than expected.
They are still what we consider the best in this field. So, if JPMorgan is the best of them all, and we start to see signs of a decline in it, then some of the weaker names, such as US Bancorp, Bank of America, and Wells Fargo, might start to see more declines, right?