This article is a continuation of our previous Charles Schwab analysis posting: Does Charles Schwab Stock Present a Good Investment?

  1. Technical Perspective

As indicated in the 5-year stock chart below, Charles Schwab stock has had a fairly roller coaster-like ride over the last several years, slumping from a high of $24.93 in late September 2008, to a low of $10.50 in late November 2011. However, since late 2012, the stock has had a pretty good rally, rising from $12.82 in early Dec 2012 to its current value of $22.31. That would translate to a spectacular 74% increase in value.

SCHW - Technicals

On its steady upward spiral, the stock has stayed largely above or around support at its 50-day Simple Moving Average (SMA) for most of 2013. That support was breached fleetingly in early February, but the stock immediately found support at its next milestone – its 100-day SMA, from where it bounced back up, breaking resistance at the 50-day mark, and has not looked back since.

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The stock has closed lower on only 7 of its last 20 trading sessions, and in the process has added 7.77% to its value in just 10 of those sessions. Unless there are some major fundamental factors that drag this stock down, SCHW seems set to climb higher. Investors will need to watch, however, to see if the September 2008 high of $24.93 offers some resistance, once the stock gets there. Breaching that resistance could set the stock up for new highs.

  1. Favorable / Negative Catalysts

Like most banking and financial stocks in the U.S., SCHW is reaping full benefit from the slowly but surely recovering economy. Its exposure to asset management and mortgages offers an excellent catalyst for future profitability and growth. However, the economy could also prove to be a negative catalyst for growth, should there be any indication of a slowdown or a stumble.

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Some analysts are likely to view the inevitable withdrawal of Fed stimulus from the market as a negative catalyst for interest-sensitive businesses. SCHW's loan and mortgage operations are certainly exposed to any interest rate hikes. However, while some borrowers may shy away from entering into new loan arrangements, others might want to sign up before interest rates rise even further. In that scenario, SCHW's earnings are sure to receive a boost from rising interest rates.   

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Any further shocks to the stock market, such as that seen in the wake of Fed Chairman Ben Bernanke's June comments regarding an end to QE, could bring pause to SCHW's longer-term revenues on the trading side of their business. That's because long-term investors are likely to pull out of the stock market and sit on the sidelines, depriving the company of potential fees. On the other hand, market volatility could also be a favorable catalyst for short-term earnings growth, as day traders and short-sellers engage in heavy buy/sell activity.

While the company has generated considerable cash flow, there is always the fear that management might be tempted to go on an acquisition spree rather than pursue an organic growth strategy. Any attempt to mimic SCHW's ill-fated acquisition of loss-making U.S. Trust, which it had to subsequently sell to Bank of America, could prove to be a negative catalyst for the company's future. However, acquisitions like optionsXpress Holdings could prove accretive to adding shareholder value and earnings power for the company.         

  1. Bottom Line Conclusion

Based on the analysis above, it is our opinion that SCHW stock rates as a HOLD. Better clarity around the Fed stimulus plans, and the trajectory of near-term interest rates would impact this rating with a Buy or a Sell update.