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The ‘Too Big To Fail’ Money Center Banks Will Suffer From Harvey, Irma Mortgage Defaults

Hurricanes Harvey and Irma left countless number of homes damaged to the extent where the homeowners will likely decide to walk away, leaving our nation’s banks with waves of mortgage defaults.

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Mortgage defaults on homes damaged or destroyed by hurricanes Harvey and Irma will adversely affect the performances of the four “too-big-to-fail” money center banks. Bank of America (BAC), Citigroup (C), JP Morgan (JPM) and Wells Fargo (WFC) control 42% of all the total assets in the banking system as shown in the FDIC Quarterly Banking Profile for the second quarter of 2017.

When looking the weekly charts below, the 200-week simple moving averages shown in green is considered the "reversion to the mean" for each stock. The "reversion to the mean" is an investment theory that the price of a stock, will eventually return to a longer-term simple moving average. The 200-week simple moving average is easy to track. A stock trading above its 200-week simple moving average will eventually decline back to it on weakness. Similarly, a stock trading below its 200-week simple moving average will eventually rebound to it on strength.

Bank of America (BAC)

Courtesy of MetaStock Xenith

The weekly chart for Bank of America is neutral with the stock above its five-week modified moving average of $23.84 and above its 200-week simple moving average of $17.51, which is the “reversion to the mean”. The 12x3x3 weekly slow stochastic reading is projected to fall to 46.93 this week down from 51.11 on Sept. 8.

Trading Strategy: Buy weakness to my semiannual and quarterly value levels of $22.35 and $20.55, respectively. Sell strength to my monthly risky level of $25.19.

Citigroup (C)

Courtesy of MetaStock Xenith

The weekly chart for Citigroup is neutral with the stock above its five-week modified moving average of $67.32 and above its 200-week simple moving average of $52.33, which is the “reversion to the mean”. The 12x3x3 weekly slow stochastic reading is projected to slip to 73.35 this week down from 73.94 on Sept. 8.

Trading Strategy: Buy weakness to my semiannual and quarterly value levels of $57.47 and $52.70, respectively. My monthly pivot is $66.46. Sell strength to my monthly risky level of $71.43.

JP Morgan (JPM)

Courtesy of MetaStock Xenith

The weekly chart for JP Morgan is neutral with the stock above its five-week modified moving average of $90.68. The stock is above its 200-week simple moving average of $67.22, which is the “reversion to the mean”. The 12x3x3 weekly slow stochastic reading is projected to decline to 59.11 this week down from 66.31 on Sept. 8.

Trading Strategy: Buy weakness to my semiannual, annual and quarterly value levels of $84.91, $84.24 and $81.55, respectively. My monthly pivot is $90, 87. Sell strength to my quarterly risky level of $95.39.

Wells Fargo (WFC)

Courtesy of MetaStock Xenith

The weekly chart for Wells Fargo is negative but oversold with the stock below its five-week modified moving average of $51.77. The stock is just below its 200-week simple moving average of $51.74, which is the “reversion to the mean”, which was has been a magnet since the week of Feb. 12, 2016. The 12x3x3 weekly slow stochastic reading is projected to end the week at 15.46, below the oversold threshold of 20.00.

Trading Strategy: Buy weakness to my quarterly value level of $47.60. Sell strength to my annual and semiannual risky levels of $55.97 and $63.60, respectively.

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