Bank stocks have been a major focus this week, with Citigroup (C) unveiling an impressive earnings report on Monday, and several sector peers slated to report later this week. This list includes State Street Corporation (NYSE:STT), which will unveil its second quarter earnings before the open this Friday, July 19. While it's been a relatively good run for the financial sector so far, a technical signal just flashed on the charts for State Street that might put the stock in hot water before its report.
By taking a look at STT's recent behavior, it's clear the stock has been struggling. While a floor at the $54 area has kept it from dropping back towards its roughly three-year low of $53.53, the security has recently found a ceiling at its 20-day moving average, and as mentioned before, just came within one standard deviation of its historically bearish 40-day trendline.
According to data from Schaeffer's Senior Quantitative Analyst Rocky White, this signal has sounded seven times during the past few years. One month later, STT was in the red 67% of the time, averaging a loss of 5.4%. At State Street's current perch of $54.62, a similar move would have the equity bottoming out at a fresh low, around $51.67.
Historically, State Street's post-earnings performance hasn't fared so well, either, with the stock finishing below breakeven the day after five of its last eight earnings reports -- including an 8.5% plummet last October, averaging a 4.1% post-earnings swing during the last two years. This time around the options market is pricing in a slightly bigger move, at 6.5%.
While the majority of analysts are cautious over the financial concern, with eight in coverage calling it a "hold" or worse, there's plenty of room for downgrades to push the security even lower, since six members of the brokerage bunch still call State Street a "buy" or better. Plus, The consensus 12-month target price of $63.21 hasn't been touched by the equity since May, and sits at a roughly 16% premium to current levels.
Options traders, on the other hand, have been piling on the bearish bets ahead of State Street's report, with 4.5 puts bought for every call during the past 10 days on the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio is in the 81st percentile of its annual range, which means puts have been picked up at a much quicker clip of late.