The Charles Schwab Corporation (SCHW) shares could be forming a double top pattern after failing to break out from prior highs. While the company is benefiting from higher net interest margins, there is growing competition among brokers catering to independent financial advisors, which could put a downward pressure on fee income over time. On the positive side, the company remains a leader in this space for the time being and continues to build its asset base.
Earlier this month, the company reported third quarter revenue that rose 13.6% to $2.17 billion – missing consensus estimates by $10 million, while net income of 42 cents per share beat consensus estimates by one cent per share. Schwab has benefited from higher interest rates, but it continues to face competition in the low-cost exchange-traded fund (ETF) market, where the company recently introduced an ultra-low-cost large-cap fund.
From a technical standpoint, the stock moved off of its highs earlier this month to trendline support at around $43.00 before rebounding to retest its prior highs. The relative strength index (RSI) has moderated to neutral levels of 58.25, but the moving average convergence divergence (MACD) remains in a bearish downtrend dating back to mid-October. Traders should maintain a neutral bias on the stock but watch for a potential turn lower.
The bearish turning point would be a move below $43.00, which would confirm the double top pattern and could lead to a move down to trendline support at around $38.00. This could also lead to a bearish crossover of the 50- and 200-day moving averages. If the stock manages to break out from its prior highs, traders should watch for some consolidation above R1 resistance at $46.04 before a move to R2 resistance at $48.33.
Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.