Market Overview

Wall Street Has Not Loved Bank Earnings So Far

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The big banks have started off the first quarter earnings season by exceeding analyst expectations, but that hasn't stopped Wall Street from punishing them.

 

The Financial Select Sector Index fell 1.5 percent on Friday following earnings results from JPMorgan Chase & Co. (NYSE: JPM), Citigroup Inc. (NYSE: C) and Wells Fargo & Co (NYSE: WFC). The index closed up slightly on Monday following Bank of America Corp.'s (NYSE: BAC) earnings beat, but is still down about 1.7 percent for the year.

 

The slew of earnings presents opportunities for short-term traders in leveraged ETFs. Four of the top 10 components in the Russell 1000 Financial Services Index—the index tracked by the Direxion Daily Financial Bull 3X Shares (NYSEARCA:FAS) and Direxion Daily Financial Bear 3X Shares (NYSEARCA:FAZ)—deliver first-quarter results this week. That quartet includes Bank of America,> Visa Inc. (NYSE: V), Goldman Sachs Group Inc. (NYSE: GS) and US Bancorp (NYSE: USB).

 

FAS tries to deliver triple the daily returns of the Russell 1000 Financial Services Index while FAZ looks to deliver triple the daily inverse returns of that index

 

What To Watch This Week

 

Bank of America joined the three banks last week in reporting EPS of $0.62 and sales of $23.275B, both beats for Q1. The latter was also the highest quarterly tally since Q1 2012. 

 

Goldman Sachs, the largest U.S. investment bank, is expected to report first-quarter earnings of $5.67 per share on revenue of $8.9 billion. Bank of America and Goldman Sachs combine for over 7 percent of the Russell 1000 Financial Services Index.

 

“Direxion leveraged and inverse ETFs offer the ability to hedge or potentially capture gains from index movements triggered by these earning reports,” according to the issuer.

 

How Traders Are Positioning

 

Though last week's financial services earnings reports disappointed investors, traders are still leaning bullish when it comes to the FAS/FAZ pair. Over the past month, the bullish FAS is averaging daily inflows of almost $4.9 million, according to issuer data. Conversely, the bearish FAZ is averaging daily outflows of just over $322,000.

 

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Posted-In: Earnings Long Ideas News Sector ETFs Short Ideas Specialty ETFs Markets Trading Ideas

 

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