Global banks can fall further
Even after sharp recent declines, the chart patterns show that four of the most prominent global bank stocks still have more downside potential.
- After collapsing from the 2009 high at $17.89, STD slightly exceeded the 50% retracement resistance but stayed below the more important 61.8% resistance level
- By measuring the width of the flag formation (line 1), you can subtract this distance from support at line b to get a downside target. This projects a drop to the $5 area (see arrow)
- Volume has been heavy, dropping the weekly on-balance volume (OBV) below its support at line c
- There is first strong resistance now in the $9.40-$10 area
- There is next good support for DB in the $38-$35.50 area
- The width of the weekly trading range (lines d and e) is $26, and this range can be used to give downside targets. This width (line 2) can be subtracted from the breakdown level at $45 (line e) to give a downside target in the $19 area
- The weekly OBV dropped below its weighted moving average (WMA) in May and then violated more important support at line g. The daily OBV (not shown) is also negative
- There is initial resistance in the $45-$46 area, which corresponds to last week’s lows
- The relative performance or RS analysis versus the MSCI World Index peaked in the fall of 2010 and has since been in a solid downtrend, line b. The violation of support (line c) was confirmed in late March (line 1) which projected further price weakness
- The daily OBV broke support at the same time as the RS, and has continued to make lower lows. The weekly OBV (not shown) has been in a downtrend since early March
- The targets from the flag formation at $2.30 have been exceeded and LYG has broken below the 2009 lows.
- Often times I measure the width at several places to get different targets because the targets from the widest part of the triangle are sometimes not met. By taking this width (line 2) and measuring down from the break of support at line e, you get a target below $5.00
- The relative strength (RS) line broke support, line h, well ahead of prices and gave advance warning of the price decline
- The daily OBV held above its support (line i) until May and the volume has been heavy this week. The weekly OBV (not shown) has been negative since May
- There is some support from 2009 in the $4.50-$5.00 area with the 2009 lows at $2.86
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3 stocks will be in the spotlight Thursday as investors try to make sense of the numbers from the sector.
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