The regional banks have been blowing the market’s performance away lately as potential for regulatory changes and higher interest rates have investors second-guessing their future of the larger financials. We’ve seen the regional banks surge as the simpler balance sheet approaches to many of these businesses should see less of an effect from any slowdown in mortgage applications or an increase in interest rates.
Year-to-date, Synovus Financial Corp. (SNV), a regional bank that operates in the mid-Atlantic area, has seen its shares rally by more than 33%, outpacing the 27% return seen by the SPDR Regional Bank ETF (KRE) and the 16% return of the S&P 500. While the shares have posted healthy returns, there’s reason to expect even more.
From a trading perspective, SNV shares just became technically attractive as they touched down to their 50-day moving average on Friday, August 30. This is the first line of technical support that we expect to see for the stock. Should the stock decline further we would expect to see even more chart support kick in at the $3.10 level, only 3.5% lower from its current price. In other words, we like the potential for two rounds of technical support that currently resides just under SNV’s price.
Making the trade even more attractive is the negative sentiment towards SNV shares. Now, we get that it’s a $3.24 stock, but as it stands now, the short sellers and analyst community really dislike this stock. Current short interest stands at about 11 times the average daily volume of shares, indicating a good chance for a short squeeze to help shares higher. Likewise, the current analyst recommendations on the stock shows that only 26% of the analysts covering it have it ranked a “buy”. It’s hard to imagine many analysts will upgrade a three dollar stock, but the possibility does exist, which would only help the cause.
Bottom line, and SNV appears in a situation that should see it continues to outpace the market as well as its regional bank peers. We see potential for the shares to rally towards the $4.00 level over the next few months, a 24% move from its current levels.
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