Remember Kerri Strugg's unlikely performance in the 1996 Olympics?
If not, let me refresh your memory.
In the final rotation of the floor exercises the U.S. Women's team held a lead over Team Russia. Things turned during that final rotation as a number of the "Magnificent Seven" had technical missteps on their vault landings. Kerri Strugg under-rotated on her first vault attempt, resulting in an injury to her ankle.
Long story short, Strugg was put into a must-win situation with an injured ankle for Team U.S.A. to have a slim chance at the gold. Against all odds, she stuck the landing with her injury which contributed to Team U.S.A.'s victory.
One bank in the Banking Sector finds itself in the same situation. Injured, all eyes watching, and on the brink of defeat.
We're one day away from the kickoff of earnings season, which of course means that the banks are getting ready to make some big moves.
If you haven't seen it yet, here's my background and expectations on what the earning season holds for the banks over the next ten days. Put simply, the contrarian trade is in play on names like Citigroup Inc. (C), Goldman Sachs Group Inc. (GS), and even regional banks like one of my Favorites Fifth Third Bancorp (FITB).
But there's another bank that's on my radar for the next week. One of the "super-regionals" that has a heavy hand in the real estate loan market. And, it's trading at one of those psychological price levels that I'm always watching.
The bank, KeyCorp (KEY).
The Cleveland-based bank remains one of the laggards of the banking sector as shares are trading about 40% lower year-to-date. For comparison, the banking ETF - SPDR S&P Bank ETF (KBE) - is sitting at year-to-date losses of 15%.
If you're tracking the sector as closely as I am, you know that KEY is the fourth worst performer in the sector.
There's a reason.
The worries over commercial, industrial, and residential real estate are far from calm in this market.
Sure, the last two days have brought lower-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) data which is pushing the expectations that the Fed will stop raising interest rates in the next month or two.
But wait, the problem for the banks is not higher interest rates in the future.
The problem is the fact that current interest rates are already high - and they're not going lower for almost a year according to the futures market.
This means that the banks and lenders are stuck with high rates as the wave of commercial real estate. That also means that the wave of loans - which originated at much lower interest rates - coming due over the next 12 months still provides a higher risk for the banks and the real estate market.
How much? According to the Business Journals, Keycorp's home city of Cleveland Ohio has just under $1 billion coming due between now and the end of 2024...
Add to the high-interest rate market the fact that commercial real estate demand in Cleveland and other metro centers is on the decline for the first time in more than a decade.
Now you see my concern on the fundamental front.
On the technical side, KEY shares have experienced the "buy the rumor rally" that has lifted all of the banks over the last two weeks.
Remember, KEY is the fourth-worst performer in the banking sector for 2023. Well, over the last two weeks, the same stock is the third-best performer.
Shares of KEY have rallied 12.1% since June 29. Only Comerica Incorporated (CMA) and Zions Bancorporation NA (ZION) have performed better out of the 88 companies in the KBE.
From a sentiment perspective, this stock is "priced for perfection" even though it is fundamentally injured.
For a visual, KEY needs to "stick the landing" on their earnings report on July 20 like Kerri Strugg nailed her vault landing in the 1996 Olympics to clinch the gold medal.
The Bottom Line
Key is on my high-risk/low-reward list as they head toward their earnings report next week.
The stock is balancing at the $10 price level.
This is one of the most psychologically significant prices a stock can break through as only having one digit to the left of the decimal for a stock's price often causes traders and investors to look at a stock with more skepticism.
KEY shares broke through the "Alpha Line" just a few weeks ago. The stock dropped 10% in six trading days before finding support at $9.00.
My experience in trading stocks that continues to break below $10 tells me that the next crossing of that line will cost 20% of the stock's value.
The catalyst is in place with next week's earnings. The price in place as KEY hovers just above $10. The next move for me is to buy a protective put in anticipation of the breakdown.
I'm making my move today with my Alpha Accelerator subscribers.
It's not too late to get in on the action - Click here to get the details.
The post The "Strugg"le is Real For This Bank Ahead of Next Week's Earnings appeared first on Penny Hawk.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.