Capital One Financial (COF) was to the financial crisis in 2008/09 in the U.S. as Yahoo! (YHOO) was to the dotcom collapse in 2000/02, both sort of a poster-child for the ills of the prior bubble, and both having a 90% or so peak to trough decline. What just caught my eye in COF is that it appears that the stock put in a massive double top last July, and from an all time high quickly broke the downtrend that had been in place from its 2009 lows, and has failed at the uptrend. It is now seemingly in a free-fall:
The reason I was looking at COF is because it reports Q4 results tonight after the close, and the options market is implying about a 6% one day move, which is essentially in line with the 4 qtr average, but below the average of the last two reports that saw the stock rally 8% in October, and down 13% in July.
Taking a closer look at a 3 year view of COF’s performance, it becomes clear that $70 should now serve as formidable technical resistance to the upside, that $60 is the slightest of a technical support level, and good luck trying to find any support between here and the mid to low $50s. The chart is a mess to say the least:
My Take: This is not a company I know well, but COF is a cheap stock trading at 8x 2016 expected earnings… the real question for COF is whether or not the double digit loan growth the company had in Q3 can be repeated vs the fear that a third of their credit card accounts are considered subprime, and have higher than normal potential to default.
This is not exactly the sort of stock you want to own if we were to see a tempering of jobs gains, and softening of economic data associated with deflationary forces from sustained lower commodity prices that would lead to some sort of credit event. Just saying. But the stock is obviously near term oversold. A great short entry would be close to $70.