EverBank a Regional to Watch

 | May 01, 2013 | 11:30 AM EDT
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Big banking has done well over the past year. JPMorgan Chase & Co (JPM) is within striking distance of its 2007 highs. Goldman Sachs (GS) has recovered about half of its losses from the 2007-2008 financial crash and has been rallying strongly since last summer. Even Bank of America (BAC) has been rising steadily and is up 150% over the past 16 months.

While these names grab headlines, regional banks are often overlooked. Interest rates and regulatory changes are often cited as being amongst the greatest risk factors for investors. Focusing on banks with a decent Tier 1 capital ratio can minimize this risk to a degree. The Tier 1 capital ratio is one of the major ways to gauge the financial stability or health of a bank and how it may be affected by adverse news or economic conditions.

One bank that recently caught my attention is EverBank Financial Corp. (EVER). EverBank is a Florida-based company that provides a range of financing services. Mortgage services have been strong for EverBank. The company focuses on jumbo mortgages, which are larger than those allowed in Freddie Mac and Fannie Mae. Further government tightening in 2011 drove even more business to banks accepting these loans. While modest homes in high-cost areas may still be covered by Freddie Mac and Fannie Mae, restrictions result in higher interest rates than can be obtained elsewhere.

EverBank's quarterly earnings results came out last Thursday. Year-over-year the adjusted return on equity grew 137 basis points. Its net income was up 230% compared to the same time last year. Its revenue jumped 47% compared to the first quarter of last year. The positive news led to a strong opening gap that broke the security out of a two-wave correction on the daily time frame. This pullback had been in play since March, but was slowing downside momentum well before the earnings news. The fact that the earnings also triggered a strong technical buy pushed shares even higher and put EverBank on the list of the day's top percentage gainers.

EverBank was basing at highs on a 60-minute time frame heading into Wednesday's session and is poised for further buying as that channel breaks higher. The weekly time frame is also favorable for the bulls over the next several months. Although it has been in a consolidation since last November, the momentum within that consolidation had shifted since late February when shares in EverBank's briefly topped last year's highs.

I'm expecting most of a rally in EverBank on any weekly break to the upside to occur over the course of approximately 6 weeks. The $14 price zone is currently the strongest support level on the weekly charts and I want to see that hold. Depending on the upside momentum of a breakout move, my target zone will be $18/$19 with $17 (just shy of prior highs) as initial daily and intraday resistance level that would likely create a multi-day correction prior to moving into the higher target levels.

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