Pullback in Bank Stocks Triggers 'Buy' Signals

Options traders are divided on PNC and Ally

May 8, 2018 at 1:25 PM
facebook twitter linkedin

Many market watchers expected bank stocks to outperform in 2018 due to higher interest rates. But a quick glance at charts for some of the biggest financial names shows their shares near or below breakeven on a year-to-date basis. This weakness could prove to be a buying opportunity, however, especially if you dig into historical returns for PNC Financial Services Group Inc (NYSE:PNC) and Ally Financial Inc (NYSE:ALLY).

Specifically, shares of PNC and ALLY have pulled back to trade near their 200-day moving averages, after trading above the closely watched trendline for several months. As we'll show below, data from Schaeffer's Senior Quantitative Analyst Rocky White reveals similar pullbacks in the past have been prime times to buy the stocks.

PNC Call Volume Accelerated

For PNC Financial, White's data says that the last two meet-ups with the 200-day moving average have each produced an upside move for the stock on a 21-day time frame, with an average gain of 8.5%. The equity was last seen trading up 1.2% at $147.58, on pace for a third straight win, so another 8.5% jump would have it back above the $160 level, and within striking distance of its Feb. 27 record high of $163.57.

Options traders may be betting on a breakout from PNC shares, too. Calls account for the top five open interest positions, including the front-month May 150, 155, 160, and 165 calls. Peak open interest, meanwhile, is at the August 160 call. Call options are unusually popular again today, with volume already surpassing the daily average.

pnc bank stock

ALLY Stock Could Test Key Level Again

Ally has similar returns after its last two pullbacks to the 200-day, trading higher 21 days out each time, and averaging a return of 7.9%. The shares are up 1.2% today at $26.86, also set for a third consecutive win. If ALLY adds 7.9% from here, it would again test the $29 level that's acted as a ceiling since early February.

Meanwhile, options traders have actually been quite bearish toward the financial name. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day put/call volume ratio of 2.25, meaning put buying has more than doubled call buying during the past two weeks.

ally stock price


Stop leaving money on the table with the same old broken options trading approach...

There is no options strategy that more perfectly capitalizes during earnings season better than this simple call and put buying strategy. Perfect for aggressive traders looking to recover their suffering portfolios so far in 2022. With the simplest possible options strategy, Schaeffer's team with 100+ years of options trading excellence, target 200% gains on every single trade. So many trades are being beaten down by the market, but don't be one of them! Don't waste another second... join us right now before the next trade is released! 

Best stocks for October and worst stocks for October


Special Offers from Schaeffer's Trading Partners