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Over the last two months, few stocks have been able to gain ground. The S&P 500 has lost 7.77% and all but one sector has been down. The only sector that has gained ground is the utilities sector.
Energy and basic materials have been hit the hardest and the financial sector was the third worst, with the Financial Select Sector SPDR ETF (NYSEArca: XLF) falling 10.29% since July 23. MetLife (NYSE: MET) has been hit especially hard in the last two months, falling almost 17.5%.
In the case of MetLife, the pullback looks to be a good buying opportunity. The stock is oversold based on the daily stochastic readings and it is close on the 10-day RSI. We also see potential support at the $44.49 level, which was the low on Aug. 24.
My bullish opinion was shaped more by the weekly chart than the daily chart, because on the weekly chart we see how the possible support comes in an area where the stock has been able to hold several times in the last couple of years.
We also see on the weekly chart that the 10-week RSI is in oversold territory. This is only the third time that has happened in the last 3 ½ years. In mid-2012, when the RSI was in oversold territory, the stock doubled in the next 18-19 months. Earlier this year, when the RSI dropped below the 30 mark, the stock rallied over 25% in six months. I look for a similar rally this time around.
The sentiment toward MetLife stock is moderate, with a short interest ratio of 2.31. Of the analyst ratings, 13 out of 20 have the stock rated as a “buy” and the other seven have it rated as a “hold.”
Another sentiment factor that I don’t mention as often are the options contracts and the peak open interest levels. What we see happen often is that if the open interest levels are substantial enough, a stock tends to find support at the point where the peak put open interest is. Contrarily, we often see resistance where the peak call open interest is.
In the case of MetLife stock, the peak put open interest over the next few months is at the 45 strike, and it is a pretty substantial amount. This option open interest gives me more reason to believe that the $45 level holds as support.
I would look to buy MetLife in the $45 to $46 range with a minimum target of $57.50, and I would use the $44 level as a stop-loss point. The overall market is still choppy, so you want to give yourself a little room with your stops right now. But even with a little more room, the potential reward for MetLife stock is substantially higher than the potential risk.
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