2 Bank Stocks Approaching Key Trendlines

Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM) could get a lift from their 80-day moving averages

by Alex Eppstein

Published on Sep 28, 2016 at 12:36 PM
Updated on Jun 24, 2020 at 10:16 AM

The drama surrounding Deutsche Bank has kept financial stocks in the forefront recently. While Deutsche Bank AG (USA) (NYSE:DB) is higher today after the company unloaded its U.K. insurance unit, the same can't be said of Dow bank stocks Goldman Sachs Group Inc (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM). In fact, both GS and JPM have pulled back to key trendlines, which could help dictate where they go from here.

At last check, Goldman stock is down 0.4% at $162.26, and has had an absolutely brutal 2016. So far this year, the shares have slid 10% -- making GS the third-worst Dow stock to own in 2016. However, hope may have arrived in the form of a trendline, as the shares recently touched their 80-day moving average for the fourth time in the past three years.

Option bulls are certainly counting on a bounce from this potentially supportive level. During the last 50 sessions, traders have bought to open 2.36 GS calls for every put at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- a ratio that ranks in the bullishly skewed 89th percentile of its annual range.

However, history suggests Goldman Sachs Group Inc's prospects of a bounce aren't particularly good. The stock has gained just half the time in the five trading days after it touches the 80-day trendline -- for an average advance of just 1%. Going out to 21 sessions, positive returns were posted after just one of the four signals, and the average return over that time frame was flat.

Meanwhile, fellow Dow bank stock JPM has performed better in 2016, relatively speaking, sitting a hair above breakeven. On a closer look, though, the shares have been red-hot since bottoming at $52.50 in early February, up over 26% at $66.26. A lift from the 80-day trendline could add to JPM's fire. The stock has touched this moving average 10 times in the last three years, and has been positive 70% of the time after a week -- with a respectable five-day of gain 0.7%, on average.

If JPMorgan Chase & Co. musters an additional show of strength, bearish options traders could be sent packing. The stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.30 ranks just 9 percentage points from an annual peak. Then again, with JPM shares outperforming in recent months, some of these put buyers could simply be shareholders hedging against an unforeseen stumble.

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