Banking stocks stole the spotlight on Wednesday, as traders digested results from the Federal Reserve's latest round of stress tests. With a few notable exceptions, the major U.S. banks aced the Fed's exam, suggesting that the fundamental outlook is improving for the underdog financial sector. In fact, after eyeing the technical and sentiment data, it's safe to say that contrarian investors will find plenty to like about regional lenders Comerica Incorporated (CMA - 33.33), BB&T Corporation (BBT - 31.06), and Huntington Bancshares Incorporated (HBAN - 6.45).
Dallas-based CMA announced a stock buyback plan worth up to $375 million, and upped its quarterly dividend to 15 cents per share from 10 cents. As a result, the shares are adding to their 24.4% year-to-date gain, which has been highlighted by support from its 10-week and 20-week moving averages. These formerly resistant trendlines have guided CMA north since early December.
As the positive price action continues, CMA could certainly benefit from a migration to the bullish camp. Currently, Zacks reports that 17 out of 27 analysts maintain a "hold" or "sell" rating on the stock, leaving plenty of room for upgrades. Any upbeat notes from this group could help to draw more buyers to the table.
There's also room for sentiment to improve among traders. During the past 50 sessions, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 2.47 puts for every call on CMA. This ratio arrives in the 96th percentile of its annual range, as options players have rarely shown a greater appetite for bearish bets over bullish.
This negative attitude is confirmed by CMA's Schaeffer's put/call open interest ratio (SOIR), which checks in at 1.83. Not only does this ratio reveal that puts nearly double calls among near-term options, it also ranks higher than 99% of other such readings taken during the previous year -- within striking distance of a fresh pessimistic peak.
Finally, short interest rose by 4.5% over the most recent reporting period, and now accounts for a respectable 4.6% of the equity's float. As CMA continues to climb the charts, a rush to cover by short sellers could provide an influx of buying pressure.
Traders anticipating additional upside from CMA may want to consider the stock's July 27 call.
BB&T Corp. (BBT)
Fresh off its own 25% dividend hike, BBT is fast approaching new two-year highs. The shares have rallied 20.9% so far in 2012, and the equity's Fed-related gains have pushed it north of short-term pressure in the $30.50 neighborhood. Earlier this year, BBT conquered resistance at the $28 level after a similarly slow-and-steady attack, and the stock could now be poised to embark on its next leg higher.
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