Bank stock expects 14% return in 2 weeks

Robo Street – January 11, 2018

Robots Lovin’ Bank Stocks Heading into Earnings Season

This past Wednesday saw the market undergo its first real test of how it would manage headline risk. A Bloomberg report that China may trim or halt its purchases of U.S. Treasuries prompted overnight selling in the Treasury market, sending the yield on the benchmark 10-yr Treasury note to its highest level since March 2017. The higher yields pushed equity investors to take some profits at the start of Wednesday’s session.

The Dow, the S&P 500, and the Nasdaq hit their worst marks of the day shortly after the opening bell, holding losses between 0.5% and 0.7%. It looked for a moment that emotional selling would heat up and feed on itself. The notion that China would stop buying U.S. debt sent shivers through the bond market and all manner of speculation hit global trading desks.

However, investors quickly bought the dip thanks in part to a CNBC interview with legendary investor Warren Buffett, who stated that he remains a net buyer of stocks, citing low interest rates and the recently passed tax reform legislation. Interestingly, the two stories had nothing in common, but emotions were calmed and the ‘buy the dip’ mentality that has characterized this bull market for the past ten years prevailed once again.

Equities eventually reached their flat lines in the afternoon but slid back into the red following a Reuters report that Canada believes that U.S. President Donald Trump will soon pull the United States out of the North American Free Trade Agreement (NAFTA). General Motors, which was flat ahead of the report, finished lower by 2.4% due to its heavy exposure to Mexico’s auto market. Again, without verifiable commentary from the White House or State Department, rumors create an unknown quantity of risk and fear sets in.

The market made one last run in the final minutes, but ended just short of its unchanged mark. Nine of eleven sectors finished in negative territory with the financials (+0.9%) and industrials (+0.1%) groups being the only two advancers. Isn’t it interesting that these are also the two sectors I’ve been consistently highlighting in my analytical models to lead the market in the first quarter of 2018 ?

The financial sector- the second heaviest group by weight- advanced at the opening bell due to rises in Treasury yields and managed to keep the bulk of its gain even though yields returned to their flat lines. A $20 billion 10-yr note reopening was met with strong demand, causing the return in yields. The benchmark 10-yr yield settled unchanged at 2.55% after trading as high as 2.59%.

It is notable that earnings season officially kicks off today with the release of fourth quarter 2017 earnings from JPMorgan, Wells Fargo, and PNC Financial. As a hard rule, I do not recommend holding stocks as trades on those specific days when companies report. You just don’t know how they will react. There is no pleasure in being on the wrong side of investor sentiment when the numbers cross the tape. Here again, emotions take precedent and logic can go right out the window. So, I always defer to digest the market’s reaction and then determine if and how we should trade.

We can fully participate where the bullish action is within the financial sector without having to expose ourselves to headline risk. On Wednesday, our featured stock was SunTrust Banks, Inc. (STI). STI was showing solid bullish signals in our Stock Forecast Toolbox’s 10-day forecast. This stock is assigned a Model Grade of (B)– indicating it ranks in the top 25th percentile for accuracy for predicted support and resistance, relative to our entire data universe. Our 10-day prediction model generated vector figures rising above +3.15% within the next two trading sessions. Our benchmark for vector figures is +1.00%.

What does this analytical lingo translate to in layman’s terms? Very simply, shares of STI broke out of a multi-month base and are now on a new upward trajectory that have my stock picking machines glowing. Just in the next 10 days the probability of STI trading from its current price of $67.70 up to $78 is quite good. That would be a gain of about 14% in the span of two weeks in a trusted big cap bank stock. Most hedge funds would kill to deliver that kind of return over the course of an entire year. I’m looking for my proprietary “always learning” model to deliver powerful gains in short spans of time.

Below is a typical ten-day table from the Tradespoon Stock Forecast Toolbox that serves as an invaluable asset, that once you utilize, there won’t be a day that goes by when you won’t filter all your stock holdings through this amazing tool. Using my latest pick in SunTrust Bank (STI), the table shows the expected price progression from January 10 through January 24 and the trading range the stock should trade within as it trends higher. This is as close to seeing into the future for your money as it gets.

The beautiful part of this trade is that the investors are already excited about the prospects of the financial sector. With the Fed talking up future rate hikes, consumer and commercial loan demand on the rise and the spread between short and long-term rates finally starting to widen out that feeds bank’s Net Interest Income, hopes are running high that JPMorgan, Wells Fargo and PNC will deliver solid numbers and more importantly upbeat forward guidance. If so, those stocks and specifically our holding in SunTrust Bank will trade higher. Momentum begets momentum and zeroing in on just where that momentum is best is how we get it done every day at Tradespoon.