Only one bank stock looks ready to rally as financials gear up for earnings: Technical analyst

Bank earnings bonanza on deck: How to trade it

The bank bonanza is about to begin.

Citigroup, Wells Fargo and J.P. Morgan Chase will kick off earnings season on Tuesday, their quarterly results marking the start of a bank-heavy reporting period that will see other giants including Bank of America, Morgan Stanley and BlackRock share their results from last quarter.

But only one banking stock stands out as a buy among the largely overheated group, Mark Newton, president and founder of Newton Advisors and a longtime chart analyst, told CNBC's "Trading Nation" on Friday.

"One stock ... that has shown some pretty decent signs of strength of late has been Goldman Sachs, which is really not near former highs, but just starting to show much better signs of acceleration," Newton said, pointing to its weekly chart.

Unlike Citigroup and Bank of America, which are nearing their 52-week highs, Goldman's stock is still bucking the broader trend in the Financial Select Sector SPDR Fund (XLF), which tracks the group and is sitting at its highest level since 2007, Newton said.

"Some of the brokers, I think, are a little more interesting in terms of what to buy heading into earnings. I would buy Goldman Sachs before I would touch things like Bank of America or Citigroup," Newton said. "I think Goldman can potentially get back towards former highs, but this group as a whole has been under pressure, it's an underperformer and my thinking is it's right to really hold off for now, for the most part."

Goldman closed down by less than 0.5% on Friday at $242.11.

John Petrides, portfolio manager in the wealth management division of Tocqueville Asset Management, took the other side of the coin.

"The large U.S. money centers are quite attractive," he said in the same "Trading Nation" interview. "Remember, the outperformance that we've seen [in the financials] was really the last quarter. For the first nine months [of 2019], the sector was a relative dog, particularly when the yield curve inverted back in August."

The financials finished 2019 as the year's third-best performing sector, giving Petrides hope that the big banks would use the positive momentum wisely this quarter.

"What I'm focused on in the upcoming earnings is how the banks are going to deploy their capital: one, reinvesting in their business as they become more fintech-focused and try to continue to survive in this low-yield environment, and the second is the banks are flush with cash. They're going to be returning a ton of that to shareholders," the wealth manager said.

"They're increasing their dividends and buying back stock," Petrides said. "The banks do have a new accounting feature this upcoming year. They have to report CECL, current expected credit losses. That's going to add some noise to the upcoming earnings calls, but by and large, I think the banks are still attractive longer term."

The XLF ended trading Friday down less than 1%. The SPDR S&P Bank ETF (KBE), which tracks the banks more broadly, was down just over 1%.