To read the tea leaves from this weekend’s central banker’s conference in Jackson Hole, Wyoming, is to try to read mud, or at least it appears that way. The messages that are coming from the meetings range from suggesting that the market will see two interest rate cuts this year to notion that the central banks are getting ready to move beyond zero rates to continue to stimulate world economies.
It all reminds us of this time last year when the Federal Open Market Committee faltered on its own outlook and didn’t raise rates in October 2015, causing a drop in many sectors, especially the financials. Today’s big stock charts looks at three companies that are open to bearish selling pressure if the FOMC once again crosses its message and confuses the market, Cincinnati Financial Corporation (NASDAQ:CINF), PNC Financial Services Group Inc (NYSE:PNC) and Huntington Bancshares Incorporated (NASDAQ:HBAN).
Cincinnati Financial Corporation (CINF)
Last year, Cincinnati Financial shares suffered as the FOMC decided not to move forward with a rate hike. CINF shares fell 12% in the wake of that move. Insurers often benefit from interest rate increases, as their investment portfolios are composed of fixed income investments.
Today’s chart of Cincinnati Financial shows a stock that is contracting into a range, and potentially being compressed into a volatility-driven move within the next month. CINF stock’s Bollinger Bands have contracted to their most narrow readings in more than a year, indicating that volatility has ebbed … this often happens before a surge in volatility.
Cincinnati Financial shares have also been losing momentum over the last month as CINF stock has consolidated across the $76 price level. The shares now hover above this mark, but a spate of short-term selling will change the trajectory of Cincinnati Financial stock for the third quarter. A break of $76 will force a bearish cross-under of the 20- and 50-day moving averages, signaling to the bears that the time to sell highs is upon them. This also would make the momentum indicators negative for CINF stock.
This combination of bearish technical signals $70 as a target.
PNC Financial Services Group Inc (PNC)
Another group of the financial sector that would see a negative effect from the FOMC fumbling the interest rate call is regional bank stocks. These stocks count on their balance sheet activity to make up for the fact that they aren’t active in investment banking and other lucrative activities that the larger financials participate in.
PNC financial is already in a long-term bear market trend, as the shares have been trading below their 20-month moving average for all of 2016. PNC stock is down almost 8% for the year against the market’s gains of almost 8%.
Shares of PNC just reversed again at their declining 200-day moving average, following a trend of lower highs and lower lows that has been in place since August 2015, a very poor technical trend to say the least. If the chart follows its 12-month pattern, we could see PNC shares extend to the $88 level over the next few weeks, but that would trigger the technical bears into action to take the shares back the $80 level.
The bearish momentum trade on PNC shares remains strong. Any thought of the FOMC not lifting rates within the next two meetings will add fundamental fuel to the bearish rally.
Huntington Bancshares Incorporated (HBAN)
Almost a carbon copy of PNC Financial Services Group, Huntington Bancshares finds itself almost hoping that the FOMC cuts rates to help break the technical trend that has mired its price activity for the last year.
Last year’s confusion over interest rates kicked off a bearish selling spree that eventually took HBAN shares into a long-term bearish trend, where they remain today. The stock recently posted a rally that resulted in a 20% gain in shares; that rally is now losing steam.
Momentum indicators for HBAN are on the decline, as shares have run into overhead resistance at their 200-day moving average. This trendline has halted rallies in Huntington Bancshares stock three times in 2016. In addition, we’ve seen an increase in selling volume of late, telling us that the technical traders are starting to lock-in their short-term profits.
A break back below $9.60, which should try to see some support from the short-term 20-day trend, will signal that HBAN stock is ready to regress to the $9 mark before the next FOMC meeting. A failure to hint or execute at higher rates by the Federal Reserve at that meeting will target another move lower for Huntington Bancshares … likely a price point of $8.00.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
