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Have you been short of banking stocks recently. How is that working out for you? What has been surprising in terms of the banking sector in the recent past is the way that while one would have thought intuitively that the Libor scandal might have done from some or all of the contenders in this sector, at least in share price terms, after a little pause we have been treated to a bear burning rally. It would appear that this rally has been all the more powerful on the basis that it went against consensus expectations.
On this basis it seems fair to take a look at the latest technicals of the chief protagonists such as Royal Bank Of Scotland (LSE:RBS), Barclays (LSE:BARC), and Lloyds Banking (LSE:LLOY). Indeed, the way things are going this could be a daily event.
RBS:
Starting off with the Royal Bank Of Scotland, and we have had insult added to injury here on this particular play in the way that just when you thought they might have to pay a fine for their part in the Libor scandal, they serve up a flotation on Direct Line Insurance. At which the market jumps for joy. The fact that we already 80% plus own Direct Line is another matter.
In terms of the price action the shares offered a near retest of the March 2 90p intraday last week. The current situation is that we are seeing a cooling off from that zone. Nevertheless, the situation looks to be that while there is no end of day close below the June 2 56p peak we would expect to see the stock revisit 290p + over the next few weeks. The reason for saying this is the way that on the daily chart we are in the run-up to the likely golden cross buy signal between the rising 50 and 200 day moving averages – typically the sweet spot in any bull run. Those of bullish disposition would be looking to buy into RBS back towards the former high at 256p, versus the current 264p price. Only well below 250p suggests the big squeeze is finally over.
Lloyds Banking:
As far as Lloyds Banking is concerned we are looking at a similarly painful picture if you are short, arguably even more so with the early September price action cracking the former one-year resistance at 38p. We are currently seeing pullback from 40p plus it only a weekly close well below £38p now would even begin to suggest that a bull trap is in place for the part nationalised non-lending specialist.
Barclays:
Finally as far as Barclays is concerned the level to remember is £1.98 which is where the stock was in June when the Libor story and attendant fine broke. Since then after an initial probe below 160p we have seen early September price actually take out the June peak at £2.08. The current position is that there has been a bull trap retreat from above the late April 226p high. However, at this stage it may pay to remember that only a weekly close well below the old June 208p top would suggest that Barclays was not going to go on and retest former March resistance and 2012 highs at £2.60 over the next 4 to 6 weeks. Therefore the messages if you’re short there is a slight chance of near term improvement. But through the early autumn things are expected to get worse rather than better for the terrible trio of UK High Street banks.
(disclaimer: I don’t hold any long/short positions in UK financial stocks at this time)
I think being short of banks like BARC at depressed levels after Libor would’ve been a naive error (asides from very short term momentum based trades). Far too mainstream a trade in my view, especially to be opening new shorts based on that media furore. “Against consensus expectations” would be precisely right, and tends to be how mainstream trades end in tears.
Libor was almost a perfect story for a contrarian buy in my opinion. If Robert Peston is pacing up and down outside your headquarters with a stern look on his face, “DOOM BARCLAYS DISASTER DEATH DIAMOND CRUSH” is on the frontpage of The Sun, and the risks to intrinsic value of your business are fairly tame, it’s not a bad bet.
Something like QE3 meanwhile, or the ECB MOT, that’s the kind of tangible news you can act on for banking stocks. Not exciting newspaper filler, or something designed to get commuters shaking their head in bemusement as they pick up the Metro, but that’s the difference.
Mark, of course you are absolutely correct that when Peston / The Sun are involved then the floor is in place. But at the time of the initial Libor shock and slap on the wrist fine it was said that Barclays would suffer reputational damage, a good reason for shorting into the initial strength towards 170p. So for bears that did get their fingers burned, it is easy to understand why.