Bank Stock Flashing Buy

FBP tends to rally after coming into contact with its 80-day trendline

by Patrick Martin

Published on Nov 20, 2018 at 12:03 PM
Updated on Nov 20, 2018 at 12:03 PM

The shares of First Bancorp (NYSE:FBP) are 2.2% lower at $8.97 in midday trading, under pressure amid the broad market sell-off today. The shares of FBP have maintained positive momentum all calendar year, and if history is any indicator, the stock could be ready to resume its long-term uptrend.

On the charts, FBP boasts a year-to-date lead of 75%, and scored a seven-year high of $9.68 on Nov. 8. The shares have been carving out a channel of higher highs since late March, with pullbacks contained by their 40- and 80-day moving averages.

Daily Stock Chart FBP

According to Schaeffer's Senior Quantitative Analyst Rocky White, FBP is now within one standard deviation of the 80-day trendline, after a lengthy stretch above it. There have been eight similar signals of this kind in the past three years, after which First Bancorp stock went on to average a one-month gain of 12.48%, with an 88% positive return rate. A move higher of similar magnitude from its current perch would have the security trading above the $10 level for the first time since 2010.

Looking toward options, calls have been almost exclusively targeted over puts, despite limited absolute volume. Data from the the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows FBP shows 1,126 calls were bought to open in the last 10 days, compared to just one put.

Digging deeper, the March 10 call saw the largest increase in open interest during this time frame. Those who purchased new positions here are betting on FBP to rally into double-digit territory in the first quarter of 2019.

Meanwhile, short-term options are attractively priced right now, from a historical volatility perspective. This is according to the security's Schaeffer's Volatility Index (SVI) of 32%, which sits in the 23rd percentile of its annual range. In other words, muted volatility expectations are being priced into near-term contracts.

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