Bank of America Corporation (BAC) is trading lower on Wednesday morning after reporting earnings per share (EPS) of $0.40 for first quarter of 2020, missing expectations by more than 30%. Revenues fell 1% year over year to $22.8 billion, matching consensus estimates of $22.6 billion, with the pandemic shutdown affecting results in all product lines. Citigroup Inc. (C) missed profit estimates by a similar margin while beating on revenues, also triggering a persistent sell-the-news reaction.
The bearish reports follow a mixed session for Dow component JPMorgan Chase & Co. (JPM), which opened higher after missing estimates on Tuesday and reversed, closing in the red. Taken together, the failure to build on oversold bounces highlights broad-based technical and balance sheet damage in the commercial banking sector as well as extreme uncertainty about results in the second and third quarters.
Bank of America stock got crushed after topping out at $55.08 in 2007, dropping more than 95% during the 2008 economic collapse before bottoming out at an 18-year low in 2009. The bounce into the new decade stalled in the upper teens, establishing a resistance level that took seven years to overcome. Steady downside into 2012 tested the prior low successfully, completing a double bottom reversal, ahead of a slow-motion uptick that stalled just below 2010 resistance in 2014.
Breakout attempts into the first quarter of 2016 failed, yielding a decline that posted the second higher low of the decade. The stock finally broke out after the presidential election, carving a steady advance that stalled in the low $30s in the first quarter of 2018. It cleared that resistance level at the end of 2019, lifting into the .786 Fibonacci retracement level of the bear market decline, and sold off with broad benchmarks into March.
That harmonic level has a well-earned reputation for ending long-term uptrends, so it's possible that the stock has posted the highest high of the economic cycle that ended in the first quarter. The downdraft found support at the 2016 breakout level, generating an oversold bounce that has now settled a few points below the 50-month exponential moving average (EMA), which was broken in March. Unfortunately, weak buying power into April hasn't healed the broken technicals, raising the odds for a test and potential violation of the March low.
Citigroup topped out at a split-adjusted $551 in 2000 and failed a 2007 breakout attempt, ahead of a reversal and downtick that accelerated into a near death spiral in October 2008. It bottomed out at an 18-year low in the single digits in March 2009 and turned higher into 2010, stalling at $54.50, ahead of massive dilution generated by 2011's 1-for-10 reverse split. The stock finally cleared resistance in 2017, lifting to a nine-year high at $80.70 in January 2018.
A sell-off into year end tested breakout support successfully, yielding a strong recovery wave that notched a bull market high at $83.11 in January 2020. The bottom dropped out in the second half of February, cutting through the 2018 low and failing the multi-year breakout. The downside settled 52 cents under the 2016 low on March 18, giving way to an oversold bounce that reversed at new resistance last week.
The decline also broke a rising lows trendline going back to 2009, raising the odds that the stock has posted the highest high for this economic cycle. Meanwhile, the monthly stochastic oscillator has just reached the oversold zone after a sell cycle took control in February. Unfortunately, big losses often unfold at this level, predicting that the stock will soon test and potentially break the March low.
The Bottom Line
Bank of America and Citigroup shares are losing ground after weak first quarter earnings reports, adding to a bearish slide after JPMorgan earnings on Tuesday. This bodes poorly for other banks set to report quarterly results in the next week.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.