2 Finance Stocks That Could Be Golden

WDR and AMTD stocks just made 'golden crosses' of their moving averages

Jul 19, 2017 at 3:29 PM
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While recent earnings from a few blue-chip banks have been less-than-impressive, Morgan Stanley today seemingly broke that trend. What's more, there could be even more gems in the financial sector. Below, we'll discuss why we're watching banks, and analyze two "Wall Street" stocks that recently made a "golden cross" -- often interpreted as a sign of strong price action on the horizon: asset management stock Waddell & Reed Financial, Inc. (NYSE:WDR) and brokerage firm TD Ameritrade Holding Corp. (NASDAQ:AMTD). What's more, we'll tell you which bank stock could be headed lower, if you think a "death cross" is as ominous as it sounds.

Of the 27 finance stocks we track, 93% are above their 80-day moving average -- among the highest of all sectors -- according to data from Schaeffer's Senior Quantitatiive Analyst Rocky White. However, not even half the analysts following the stocks offer up "buy" or better ratings, with bullish endorsements actually dwindling from a year ago. Further, short interest on this group has increased over the past year. All of this suggests there's still quite a bit of collective sideline cash to drive financial stocks higher, though, of course, that's not taking into consideration any macroeconomic events like next week's Fed meeting.

Golden Crosses

golden cross occurs when a short-term moving average crosses above a longer-term moving average. Most commonly, an equity or index's 50-day moving average and 200-day moving averages are used to determine when such a cross occurs. A golden cross is considered to be a bullish sign, signaling an oncoming upswing for an equity or index. Besides just signaling a potential upswing, the longer-term average often becomes a support level for that particular stock or index.

According to White, below are the stocks that have made golden crosses since July 10. All of the stocks trade at least a million shares a day and closed over $7. At the top of the list are Waddell & Reed and TD Ameritrade stocks, which enjoyed a golden cross of their 50- and 200-day trendlines on July 18 and July 17, respectively.

golden crosses

WDR Stock Ripe for Short Squeeze

Since its most recent test of support in the $16.50 region in late May, WDR stock has rallied roughly 25%, and earlier today touched a year-to-date high of $20.80. The shares were last seen around $20.60, and are now encroaching on the $21-$22 neighborhood -- an area that stifled rally attempts in 2016. 

WDR stock chart

However, a short squeeze could add fuel to WDR stock's fire. Short interest accounts for more than 21% of the equity's total available float, and represents more than 12 days' worth of buying power at Waddell & Reed stock's average daily trading volume. Further, upbeat analyst attention could be a boon for WDR shares, which boast just one "buy" or better rating, compared to six "hold" or worse recommendations.

AMTD Stock Eyeing All-Time Highs

TD Ameritrade stock has been on a similar tear, surging almost 28% since testing support in the $36 area in May. The stock was last seen around $46.05, and earlier today peaked at $47.24 -- just 17 cents shy of January's all-time high of $47.41. What's more, the last time AMTD stock's 50- and 200-day moving averages made a golden cross, back in September 2016, it preceded a very lengthy rally for the security.

AMTD chart

Following a well-received earnings report yesterday, TD Ameritrade stock scored two price-target boosts this morning: SunTrust Robinson lifted its target to $50 from $46 -- in uncharted territory -- and Deutsche Bank hiked its target by $2 to $45. However, not everyone has boarded the bullish bandwagon. Short interest would take about a week to buy back, at AMTD's average daily trading volume -- plenty of fuel for a short squeeze.

Plus, now is an opportune time to be an AMTD options buyer. In the wake of the post-earnings volatility crush, the stock's Schaeffer's Volatility Index (SVI) of 22% is lower than just 2% of all other readings from the past year. That means AMTD's near-term options are attractively priced, from a historical volatility standpoint. Furthermore, the stock's Schaeffer's Volatility Scorecard (SVS) is the best -- 100 -- meaning the shares have exceeded options traders' volatility expectations during the past year.

Death Crosses

A death cross occurs when a short-term moving average crosses below a longer-term moving average. This is thought to be a bearish sign, signaling an oncoming decline for an equity or index. In the same way the long-term moving average becomes a level of support during a golden cross, with a death cross, the long-term moving average usually becomes a level of resistance. In addition, with both death crosses and golden crosses, the higher the trading volume that accompanies the signal, the more relevant the signal is considered to be. According to White, the following stocks recently underwent a death cross.

death crosses

On the list is British bank Barclays PLC (ADR) (NYSE:BCS), which reports earnings next week. BCS stock has spent 2017 in a channel of lower highs and lows, losing 2.5% year-to-date. BCS shares were last seen trading around $10.73.

BCS stock chart

Despite the shares' struggles in 2017, not to mention a messy Brexit backdrop, half of the analysts following BCS stock maintain "buy" or better endorsements. What's more, short interest on Barclays stock is minimal, representing not even 0.5% of the equity's total available float. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio stands at an annual high of 91.29. Should BCS shares extend their recent swoon, an exodus of bullish analysts or options traders could exacerbate Barclays stock's decline.

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