This Bank Stock Could Be a Bargain Right Now

UBS Group shares could be ready to rebound, if recent history is any guide

Jun 1, 2017 at 12:56 PM
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Financial stocks have been hit hard lately, with JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corp (NYSE:BAC) sinking yesterday after issuing lackluster current-quarter sales outlooks. What's more, the Financial Select Sector SPDR Fund (XLF) has historically been one of the worst exchange-traded funds (ETFs) to own in June, averaging a loss of 3.4% over the past 10 years. However, if recent history is any indicator, bullish traders may want to consider buying the dip on one bank stock: Switzerland-based UBS Group AG (USA) (NYSE:UBS)

UBS Stock Tests Notable Support

While other bank stocks are flirting with year-to-date lows, UBS remains positive for 2017, up 2.5% at $16.06. The stock has taken its lumps with the financial sector lately, though, dropping 10.3% since touching an annual high of $17.71 on May 5. However, UBS Group stock is now testing its 160-day moving average, which could mark a buying opportunity, if past is prologue.

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, the last two times UBS shares came within a standard deviation of their 160-day trendline after a lengthy period above it, the equity was higher both times one month out. In fact, UBS averaged a one-month gain of 6.33% after these last two signals. Further, this moving average has ascended into the $15.50-$16 area, which has contained most of UBS stock's dips since a gap higher in November.

UBS stock chart

Short Interest Depleted on UBS Stock

However, as with many financial stocks, short interest on UBS is scant -- meaning there's little in the way of sideline cash available to fuel potential rallies. Short interest on the Swiss bank dropped 16.4% during the past two reporting periods, and now accounts for a meager 0.09% of UBS' total available float, representing not even one day's worth of pent-up buying demand, at the stock's average pace of trading.

And as for wannabe UBS options traders, it should be noted that the stock's Schaeffer's Volatility Scorecard (SVS) sits at a paltry 11. This suggests the options market has overpriced UBS Group shares' ability to make big moves during the past year. 

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