From a contrarian perspective, ALLY stock makes a better bullish case than CS shares
Bank stocks
Ally Financial Inc (NYSE:ALLY) and
Credit Suisse Group AG (ADR) (NYSE:CS) have recently pulled back to their 80-day moving averages, pressured by
financial sector headwinds. However, according to historical data crunched by Schaeffer's Senior Quantitative Analyst Rocky White, shares of ALLY and CS could be on the verge of a trendline bounce.
Plenty of Skepticism Priced Into Ally Financial Shares
ALLY stock was last seen 1.1% lower at $20.16, and below its 80-day moving average, hit by a price-target cut to $26 at BMO. However, the two other times the shares have touched this trendline in the past three years, they've gone on to post positive returns in the ensuing month. Specifically, ALLY has averaged a 21-day gain of 11%.
While the stock has been struggling since nabbing a mid-February annual high at $23.62, it remains 10% higher on a year-over-year basis. Moreover, if Ally rebounds off technical support, there's plenty of pessimism to be unwound across Wall Street. For example, 13 million shares are sold short, translating to four days' worth of pent-up buying power, at the stock's average trading pace.
If that's not enough, put buying has been transpiring at an extremely rapid rate in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ALLY has amassed a top-heavy 10-day put/call volume ratio of 17.07 -- just 2 percentage points from a 12-month peak. A capitulation among these options skeptics could create tailwinds for ALLY stock.
Short Selling Is Nearly Exhausted on Credit Suisse Shares
CS has similarly found support at its 80-day trendline, looking back three years. In seven occurrences, the bank stock has bounced 100% of the time one week post-signal -- with an average gain of 6% -- and 83% of the time 21 days out, with a typical return of 6.8%.
Today, Credit Suisse stock is down 2.6% at $14.47, amid reports the firm could accelerate bookbuilding to
raise capital, eschewing previous plans of an initial public offering (IPO) at its Swiss unit. Yet, the shares have come a long way since bottoming in early July, just above $10.
However, unlike Ally Financial Inc, Credit Suisse Group AG has seen most of its pessimism unwound already -- which bodes poorly, from a
contrarian trading perspective. Most clearly, short interest plunged 33.7% in the latest reporting period, leaving just 0.2% of CS stock's float dedicated to these bearish bets.
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