Playbook: Bank Stock Could Face Sector Pressure

PNC could test key support this week

Mar 21, 2023 at 9:23 AM
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Below is an excerpt from this Monday's episode of Schaeffer's Playbook of the Week, featuring Schaeffer's Senior Equity Analyst Joe Hargett. Below, Joe makes a bearish case for PNC Financial Services Group Inc (NYSE:PNC) as the Fed meeting gets underway and the bank sector simmers. 

"I am.. banking on this small-bank contagion to linger. Whether anyone else fails is not the concern. I am not worried about PNC failing, but what I am worried about is the price action and pressure in the market sending the stock lower. Per the chart, we have support around $120 for a while, but its not perfect. It broke below during the Covid selloff of 2020, and also a little dip in late 2018 during the December crash.

PNC Stock Chart (002)

We crashed right through $130, and there's very little meaningful open interest (OI) below, with peak put OI at $100. That’s quite a ways away. 

More broadly, PNC's Schaeffer's put/call open interest ration (SOIR) of 0.79 stands higher than only 6% of readings from the past 12 months, suggesting short-term options traders favor bullish bets. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 0.84 sits in just the 24th percentile of annual readings.

Short interest, meanwhile, is up 14% in the most recent reporting period. Our concerns are a rebound from oversold levels. The stock has been hit hard, but won’t die. People know its going to recover. PNC is a well-handled stock, and the bank is a solid company. Another concern is support at $120 and $110. Could the former fail and then it drops down to the latter?

The Fed could play into that, they won’t do the banking sector any favors this week. It has to battle inflation, and that is its main goal. Their mandate is to maintain full employment and low interest rates. There’s nothing in there about servicing Wall Street or keeping the banks afloat, that’s the treasury’s job. 

You know Fed Chair Jerome Powell is going to be eyeing it, he can’t ignore it, but I don’t think its going to be enough to prevent these banks to struggle more this week.

Long story short, if $120 falls, we are going down."

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Schaeffer's Playbook of the Week


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