Custodian Banks – 2 Down 1 to Go…Or So What Still Dead

• Posted by Greg Harmon
• on July 19th, 2011

State Street (ticker: $STT) and Bank of New York Mellon (ticker: $BK) reported earnings Tuesday morning. State Street missed estimates and was shellacked 2% lower. Bank of New York Mellon barely beat and barely had a positive day. Northern Trust (ticker: $NTRS), the third of the big custodial banks reports Wednesday morning before the market opens. How will it do based on the results of State Street and Bank of New York Mellon? This is the wrong question to ask unless you are a day trader. Let me explain.

Below is the weekly chart for State Street. Notice how it has been between the 50% and 38.2% Fibonacci

State Street, $STT

retracement levels of the move from the 2008 highs to the lows in March 2009, since November 2010. The earnings moved the stock lower Tuesday but it remains in the narrow range but below the symmetrical triangle with the Relative Strength Index (RSI ) and the Moving Average Convergence Divergence (MACD) indicator both suggesting the downside of the previous to weeks to continue. A break of the 41.09 level would be large for this name, exposing it to downside of 35 followed by 32 and 30.79, the 23.6% Fibonacci level. It looked lower before earnings and still looks better to the downside. Now look at the chart for Bank of New York Mellon. The orange and green lines represent a range between 24 and 32.50 that $BK has

Bank of New York Mellon, $BK

traded in since March 2009. The Fibonacci levels show that the top of the range is just above the 50% retracement and that it has not yet tested the 23.6% retracement. This stock was up 9 cents Tuesday on the small beat but look at the trend. Down since January. The move Tuesday did not even wipe out Monday’s down move. If this stock gets under 24 then it is clear it will test the 22.37 area. Its RSI suggests it heads lower while the MACD is negative but improving. Maybe the range bottom holds.

So what does this mean for Nothern Trust for Wednesday morning? The chart suggests that unless they

Northern Trust, $NTRS

report something wildly unexpected like $1.50 per share (estimates range from 62-78 cents with the consensus at 69 cents)the downtrend will continue. This in some respects is the worst looking of the three charts. It has broken the range between the 23.6% Fibonacci level and the 50% Fibonacci level it has traded in since mid 2009 and it still has a RSI trending lower and a MACD that is negative and not improving. Support lower comes at 42.50 and then 37.50 below that. Any upside move is likely to stall at the Fibonacci level at 44.65 or resistance at 46 above that. Now you can sleep in.

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