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As a contrarian, a shrewd trader might look at this breakout and start to prepare for the next leg lower

Managing Editor
Jul 16, 2021 at 12:22 PM
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Back in June of 2020, the U.S. was in the midst of political turmoil, as an uproar against the systemic mistreatment of marginalized communities came to the forefront of society. At that time, as a company, we wanted to show our support by looking into black-owned stocks that you could invest in. One of the two names we covered was banking giant, Carver Bancorp (CARV).

Carver is a holding company for Carver Federal Savings Bank, the largest black-operated bank in the country. Founded in 1948 to help serve African American communities, it is designated by the U.S. Treasury as a Community Development Financial Institution (CDFI). When we profiled the stock in June 2020, CARV was trading around the $16.80 level, at a near-decade peak, with a slew of moving averages emerging as support.

To give a more in-depth focus on the equity’s current standing, CARV is the "most discussed stock in messages on retail social media platform Stocktwits, with nearly 94.45% reflecting positive sentiment toward the bank's shares" per Thomson Reuters. This statement comes as no surprise with knowledge that the stock’s short interest is currently coming in at record-high levels.

Specifically, short interest on Carver Bancorp stock is now at 272,367 shares -- all-time high territory. This accounts for nearly 30% of the stock’s total available float, putting the capitulation of these bearish bettors – a short squeeze – in play. This short squeeze potential has attracted a flurry of retail traders who peruse Reddit forums looking for heavily shorted stocks. And all of that volume has sent CARV to a more than decade peak of $38.87.

CARVCotwchart

Carver Bancorp hasn’t come this close to the round $40 mark since January 2011. This incredible re-growth has emerged on the heels of fresh support at the 180-day moving average -- a trendline that was resistance in June 2020 that has since pivoted to serve as a stable floor in 2021. Now, the equity boasts an impressive 246% year-over-year gain, and is 325% above its August 2020 bottom of $5.15.

As a contrarian, a shrewd trader might look at this breakout and start to prepare for the next leg lower, a precipitous drop back to reality in the same manner most meme stocks fall. This is certainly possible, as the stock’s 14-Day Relative Strength Index (RSI) is firmly in "overbought" territory at 75. Yet as shown in the chart above in the lower pane, the banking giant’s RSI roared into the 90’s in early June. In other words, context is important when assessing the viability and strength of a potential CARV pullback. Perhaps, since RSI has recently clocked in at much sharper levels, the stock’s pullback won’t be as calamitous, and long equity exposure can be protected via puts or other options strategies that involve hedging.

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, July 11.

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