Signal Says Proceed With Caution on PNC Stock Before Earnings

The bank stock just ran into a formidable trendline

PNC Financial Services Group Inc (NYSE:PNC) will join bank peers JPMorgan Chase (JPM) and Wells Fargo (WFC) in the earnings confessional on Friday. Since bottoming out at two-year lows in late December, PNC stock has managed an 18% rebound. However, a bearish signal just flashed on the charts that, if history is any indicator, might make traders want to proceed with caution before speculating on PNC stock ahead of earnings.

PNC stock just came within one standard deviation of its 160-day moving average, after a lengthy period beneath the trendline. In the past three years, this signal showed up five other times, per data from Schaeffer's Senior Quantitative Analyst Rocky White. The bank stock was in the red one month later each time, suffering a 5.1% loss, on average. At its current perch of $128.21, a similar move would have PNC trading just atop the $121 level.

Looking at PNC's earnings history, the stock has ended lower the day afterfive of the past eight quarterly reports. Over the past two years, PNC shares have averaged a 1.6% swing after earnings, regardless of direction. This time, the options market is pricing in a much bigger-than-usual 4.4% move for Friday's trading, almost three times PNC's normal post-earnings move.

While 11 of the 18 analysts following the stock give it a tepid "hold" rating, seven are still holding on to their "strong buy" valuations. This leaves the door open for plenty of downgrades, should earnings disappoint this week.

On the other hand, short interest rose a dizzying 45.4% in the most recent reporting period. There's still plenty of room on the bearish bandwagon, though. Currently, PNC's short interest accounts for less than 1% of the stock's available float, and roughly one day of buying power, at the equity's average pace of trading.