What the Numbers May Say About Banks


This post is for education purposes only and should not be interpreted as a trade recommendation.

There are many ways to measure strength in the market. Simple price appreciation is perhaps the most common, but this can sometimes overstate moves in highly volatile stocks.

This is where TradeStation’s customizable tools come to the rescue. Yesterday I wanted to find stocks that fared best since last month’s mini-correction. Instead of simply looking at who’s gone up or down the most, I wrote a quick indicator called “Distance from 52-week high.” It returns a percent, with higher values showing more strength.

Next, I dropped it into RadarScreen®, TradeStation’s Swiss Army knife of market intelligence. I also added a list of ETFs corresponding to major industries. A quick sort by the new formula reveals areas of the market least hurt by the recent pullback.

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The winner? SPDR S&P Regional Banking ETF (KRE), which actually managed to close 0.17 percent above its previous high on Tuesday. Other portfolios tracking semiconductors and software also closed at new highs, by the way.

Radar Screen with Select ETFs

Let’s stick with banks because some major players in the space have triggered quantitative-based alerts. TradeStation Technologies’ Data Science team just developed a new fundamental/technical hybrid model. It builds a list of companies whose analysts have been raising their earnings estimates, while another algorithm identifies oversold stocks poised for a mean-reversion bounce.

Citigroup (C) and JPMorgan Chase (JPM) were near the top of last night’s list. U.S. Bancorp (USB) and Wells Fargo (WFC) were also flagged as “strong out performs.” If you want to be placed on the waiting list for access to these quant models when they’re released, please email me at DRussell@tradestation.com.

One or two other thoughts: Financial ratios may indicate banks remain relatively cheap a decade after the mortgage crisis. For instance, gauges like debt-to-equity and tangible common equity show firms like C and JPM are much less leveraged now than during the bubble. They also trade at about half the price-to-book values. Together that means they’re cheaper based on valuation and their balance sheets have room for expansion.

And expand they just might because growth — rather than rehabilitation — is increasingly a focus for management teams. A final metric is the Federal Reserve’s loan officer survey, which shows their willingness to make loans. It’s been rising for the last year and is currently at the most generous levels since the end of 2014. A simple translation? “Have money, will lend.”

Throw all those pieces together and it may paint a positive picture for the banks.

This post is for education purposes only and should not be interpreted as a trade recommendation.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.