Jeff DeGraaf, Chairman of Renaissance Macro Research and CNBC contributor, has been named the number one technical analyst by Institutional Investor for each of the last eight years. So, when he talks numbers, Talking Numbers listens.
On KBW Bank index:
You’re talking about a three-year base formation here…. When we look at it, our model suggests [they] continue to be one of the strongest sectors of the marketplace. And, I think, under-appreciated by the investing public.
People are very interested in cyclicals. These have all the hallmarks of cyclicals. If cyclicals are going to work, the banks are going to work. The banks are leadership and they should work even better.
The BKX specifically: you’re getting through this resistance zone from April, 2010. That says that you have three years of this consolidation – of the market digesting the gains off the ’09 lows – and [they] are now just starting to break out again. I think you’re getting Dodd-Frank behind you. I think you’re getting the yield curve to come into play here. I think a lot of good things are happening for banks.
On buying if bank stocks go lower this summer:
If you look at Europe and you look at the last three years specifically, you had the stresses that were in Europe spilled over to our US equity markets…. I think it’s very, very accommodating, not only if you get a consolidation [in share prices] but I think waiting for a [price] consolidation in the banks is frankly, too easy of a call. You want to chase them here because of the expansion in the new highs list, the [price] consolidation we’ve seen…. and, the [yield] curve is now steepening again. The curve steepens, that’s great news for banks.
On recommending a buy of JPMorgan Chase despite the recent battle on separating the role of Chairman from CEO:
I love controversy. When it’s headline news, it’s probably already priced into the stock.
If you look at this chart on a monthly basis, unlike many of the others, JPMorgan is very close to getting through its all-time highs back in 2000. That’s still another 15 points away. But, you’ve got several names: Citi, Bank of America, etc. that have… they need to be five, ten-baggers (points) before they’re going to get to their all-time highs.
JPMorgan has really weathered this extremely well. Sure, it was a big draw-down from the highs in 2007, but you’re now just starting to get through those.
If you go through a bank index over the last five or ten years, you’re going to find very few names making those new highs. Names that are making all-time highs or on the cusp are names that have great balance sheets, are systemically important, and probably are in the right business mix to take you higher as this recovery improves.