The PNC Financial Services Group, Inc. (PNC) reports earnings on Friday, April 12, with the stock in bear market territory. This super regional bank is the seventh largest bank according to FDIC data, with $370.5 billion in total assets at the end of 2018. PNC stock has been trading under a "death cross" for months and is between its 50-day simple moving average at $125.09 and its 200-day simple moving average at $131.26. On the positive side, the weekly chart is trying to confirm a tradeable bottom, but that would require a positive reaction to the upcoming earnings report.
The stock closed Wednesday, April 10, at $127.29, up 8.9% year to date and up 17.4% from its Dec. 26 low. However, the stock is in bear market territory at 22.2% below its all-time intraday high of $163.58 set on Feb. 27, 2018.
A dovish Federal Reserve following the March 20 FOMC meeting proved to be a problem for regional banks due to compressed net interest margins. The FDIC is concerned about banks reaching for yields, and higher short-term rates versus lower longer-term rates makes banks reach for yield to lower-rated investments. This will be a critical component of evaluating earnings results and guidance.
Analysts expect PNC to report earnings per share of $2.59 to $2.62 when it discloses results before the opening bell on Friday, April 12. The stock is fairly priced with a P/E ratio of 11.83 and dividend yield of 3.00%, according to Macrotrends. This bank missed earnings estimates on Jan. 16, making the stock a laggard. Wall Street is looking for earnings growth, but that's a tough call given the fact that the banking system is becoming more conservative to lending on Main Street.
The daily chart for PNC Financial
Shares of PNC have been below a "death cross" since June 29, 2018, when the 50-day simple moving average declined below the 200-day simple moving average, indicating that lower prices lay ahead. The stock tested its 200-day simple moving average at $146.27, which was a sell strength opportunity. This signal remained in play when the stock traded as low as $108.45 on Dec. 26, which ended the "death cross" with a "key reversal," as the day's close at $114.84 was above the Dec. 24 high of $112.67. Since then, the stock has been in a choppy recovery.
PNC stock closed Dec. 31 at $118.91, which was an important input to my proprietary analytics. The stock is below annual and semiannual risky levels at $133.76 and $137.08, respectively. The close of $122.66 on March 29 was the latest input to my analytics and resulted in a monthly value level at $111.82 and a quarterly risky level at $143.91.
The weekly chart for PNC Financial
The weekly chart for PNC is neutral, with the stock above its five-week modified moving average at $125.28. The stock is above its 200-week simple moving average, or "reversion to the mean," at $116.59 after it was tested during the weeks of Dec. 21 and Dec. 28. The 12 x 3 x 3 weekly slow stochastic reading is projected to end this week at 57.38, down from 58.05 on April 5. A weekly close below $125.28 would be negative.
Trading strategy: Buy PNC shares on weakness to the 200-week simple moving average at $115.59 and reduce holdings on strength to the annual and semiannual risky levels at $133.76 and $137.08, respectively.
How to use my value levels and risky levels: Value levels and risky levels are based on the last nine weekly, monthly, quarterly, semiannual and annual closes. The first set of levels were based on the closes on Dec. 31. The original semiannual and annual levels remain in play. The weekly level changes each week; the monthly level was changed at the end of January, February and March. The quarterly level was changed at the end of March.
My theory is that nine years of volatility between closes are enough to assume that all possible bullish or bearish events for the stock are factored in already. To capture share price volatility, investors should buy shares on weakness to a value level and reduce holdings on strength to a risky level. A pivot is a value level or risky level that was violated within its time horizon. Pivots act as magnets that have a high probability of being tested again before their time horizon expires.
Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.