Trader on what to watch

Banks unofficially kick off the third-quarter earnings season this week.

One company’s report should set the tone, according to Piper Sandler chief market technician Craig Johnson.  

“We’re keeping our eye on JPMorgan. I think that’s going to be the bellwether that we’re really going to want to watch here in earnings,” Johnson told CNBC’s “Trading Nation” on Friday. “We’ve been making this kind of nice symmetrical sort of setup in the price action here recently, and that really suggests that perhaps a lot of the bad news might be priced in.”

JPMorgan, which reports earnings on Tuesday morning, is also turning higher compared with broader markets, Johnson said, a welcome change given banks have underperformed this year.

“We’re at an inflection point in terms of the relative strength line, and sort of turning up in here is another positive sign that the banks are starting to outperform sort of the broader S&P at this point, ‘ he said. “I think the trade is to be buying heading into the quarter.”

JPMorgan has fallen 27% this year, while the KBE bank ETF has dropped more than 30%. Options markets anticipate a 4% move in either direction for JPMorgan after earnings, added Johnson. If to the upside, it would take JPMorgan above $105, a level Johnson said should pave the way for the next leg higher toward $120. Shares closed Friday at $101.20.

Michael Binger, president of Gradient Investments, is measuring the banks’ success by several key metrics: net interest income, loan growth, and strength in mortgage and refinancing businesses. He sees two names as potential winners.

“I like Morgan Stanley a lot right here,” Binger said during the same “Trading Nation” segment. “I love the acquisitions they’ve been making in the trading platforms and the asset management space. I think that’ll help their valuation multiple improve going forward.”

Morgan Stanley agreed on Thursday to buy asset management firm Eaton Vance in a cash-and-stock deal worth $7 billion. Morgan Stanley closed its acquisition of E-Trade in early October.

“Then secondly, I like Wells Fargo right here. It’s the ultimate value play. In my opinion, it trades at too steep of a discount to book value. And if management can just stay out of the media and they can execute on their cost-cutting plan, I think the stock is a good buy at these levels,” said Binger.

Disclosure: Binger holds WFC.  


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