Morning Comment: A technical look at GS, JPM & CSX.

Boring day yesterday, but earnings should change all that

It was quite an uneventful day yesterday in the markets…as we saw little movement in stocks and bonds…as well as in crude oil, gold, the dollar, etc. There was some minor positives & negatives yesterday (with the slight outperformance of the semiconductor stocks on the positive side of the ledger and the underperformance of the Russell 2000 on the negative side), but neither of those moves was big enough to be considered overly compelling. The composite volume was just less than 2.4bn shares for the second day in a row…and the breadth was basically flat….zzzzzzzzzzzzz.

Citigroup's action was disappointing

There was one disappointing development yesterday…as Citigroup didn’t act very well in the face of a positive earnings report. It was able to close in positive territory, but well below where it was being priced in pre-market trading. This poor performance weighed on the entire bank group…as the KBE and KRE bank ETFs both fell about 2%!.....This is quite reminiscent of several other quarters over the past 2.5 years where banks have reported solid earnings, but that was not enough to fuel much of a rally in the group. Of course, the impact of just one stock (after just one day) does not make a trend. However, since the expectation that interest rates will remain low for a long time is the consensus, it’s going to be tough for the bank stocks to gain a lot of traction if their earnings report do not provide a catalyst.

However, the bank stocks are not a leadership group right now

What does this action say about the rest of the stock market? To be honest, it does not tell us much. Let’s face it, the very poor performance of the bank group has not deterred the broad market from rallying STRONGLY the past 30 months. Since the beginning of 2017, the S&P 500 has rallied 34%...while the KBE bank ETF has been dead flat!!! Therefore, even if the bank stocks continue to underperform the broad market in a substantial fashion going forward…it does not mean it will create any headwinds for the broad averages…..Don’t get me wrong, I'm not saying that earnings reports for the banking sector should be ignored. I'm just saying that reaction to the earnings reports for this group has not been as important in recent years as it has been in the past…..The group WILL regain its leadership role someday, but it is less important than the movement in other groups right now.

Goldman Sachs looks good on the charts

Having said all this, I DO want to point out that two major stocks in the banking sector are key junctures on a technical basis. So even if their upcoming moves don’t have a big impact on the broad market, they should be important for the individual stocks as we move through the rest of the summer. The first one is Goldman Sachs (GS). They reported better-than-expected earnings this morning and the stock is trading up by about 1% in pre-market trading. If this pop in the pre-market can turn into a larger rise, it’s going to be quite positive for the stock.

GS had already broken above the trend-line from its early 2018 highs in late June. More recently, the stock had also broken slightly above the top line of an “ascending triangle” pattern…which is also quite positive. Therefore if GS can pull more meaningfully above this technical pattern, it will confirm that the downward trend that GS has been in since early 2018 has reversed itself. Of course, if this early positive reaction is reversed…and the stock rolls back over in a major way…it’s going to be quite negative. So as you can see, the stock is at a key technical juncture. Right now, it looks QUITE good…but we’d like to see it hold its gains (and build on them) before we can confirm the breakout. Right now, however, this one has a lot of upside potential.

JPM at a key technical juncture

The second stock is JP Morgan (JPM). They reported better earnings as well, but they also lowered their guidance on net interest margins (NIM). This has the stock down about 1.5% in the pre-market. Like GS, JPM has ALSO formed an “ascending triangle” pattern, so it stands at an important level as well. JPM had been getting quite close to the upper end of this technical pattern, so this morning’s new is disappointing…..As we learned with Citigroup yesterday, the action in the pre-market trading is not always a good indicator of how it will trade once the market actually opens. However, this one seems to have the opposite potential of GS this morning.

The earnings report for CSX should be important for the Transports

I’ll finish by looking at another stock (from a different sector) that reports earnings today: CSX. They do not report until after the close today, but there has been A LOT of talk about the underperformance of the Transports recently (and rightfully so). Thus the results for CSX could/should be quite important as well……Guess what? This is ANOTHER stock that has formed an “ascending triangle” pattern. Therefore, if this key stock in the transportation index can break-out of this pattern to the upside, it should be very positive for the stock (and for the sector as a whole). If, however, it rolls back over in a meaningful way, it will raise further concerns about this important economically sensitive part of the market.

With JB Hunt (JBHT) reporting much better earnings after the close last night…the Transports have some upside potential. However, we’re still going to have to see other names (like CSX) do well if this key sector is going to play catch-up. Tonight’s results out of CSX should go a long way in terms of telling us which was this group will break over the coming weeks.

Matthew J. Maley

Managing Director

Chief Market Strategist

Miller Tabak + Co., LLC


275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Jul 16, 2019 — 8:07 AM
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