Pullback in Bank Stocks Triggers 'Buy' Signals

PNC and ALLY stocks, for example, are trading just above their 200-day moving averages

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.

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.