We all know the talk about Banks exposure to toxic debt and the possible damage to the balance sheets to the point that its becoming a “normal” item on the newsfeeds. So, rather than bore you with the more of the same I thought it was time to look at the charts of banks due to report over the next few weeks. This will not be a crash course in Elliott Wave Theory, more of a simple approach to Technical Analysis using a moving average, an indicator, identifying possible support and resistance and pattern recognition. I do not intend to recommend a position in any share, I will just be pointing out how I interpret the charts. 

Lets start with Barclays share price, around whom swirls the talk of further losses due to the sub-prime fiasco.

Barclays Daily:

This is an interesting chart. The red horizontal lines are long term support and resistance. The green line is a simple moving average and the black lines show a wedge pattern. There would appear to be strong support to keep Barclays above the lower red line (446p). The falling wedge, even in a downtrend, can be bullish, watch for a break of the upper line. The indicator (Williams % range) is chosen for its quickness to respond to the price movements, it is attempting to break away from an oversold condition.

My view is that the market expects Barclays to surprise to the upside. Resistance is at 518p (red line) the moving average at 536p and further resistance at 592p. I have long held the view that 590p on Barclays is a very important level. However, a break below 375p (the lower wedge line) would be bearish.

Next is Halifax Bank of Scotland (HBOS).

Using the same criteria we see a very similar chart to Barclays. Although the wedge is less defined it’s still applicable. Resistance is at 716p on a break out through the upper line of the wedge. Thereafter the MA at 773p and resistance at 878p beckon. Support is at 587p and a close below this would be undesirable.

Lloyds (lloy):

Lloyds share price chart surprised me. I don’t follow it too closely but I had expected to see a more bullish chart. I see a triangle pattern, which shows indecision in the market (you often see such patterns on the FTSE prior to US news releases etc). Again though we see a move up on the Williams % range from an oversold condition. Resistance is at 436p the MA at 484p and further resistance at 510p. Support in this instance is the lower triangle boundary and the previous low at 353p.

HSBC is one of the banks that the market is expecting more bad news from. Here is the chart:

Although it’s not perfect the down channel (black lines) seems the better pattern here. I have to say I do not like the look of this chart from the bullish side. True, the Williams % is rising from oversold but it seems more sideways than up. The important support is 711p at the recent low. The upper channel line is at 770p with resistance at 783p, 846p (MA) and 857p.

Expectations for RBS are low with its tier 1 capital ratio at 4%. (You need 8% to comply with Basel 2). The rumour is that RBS does not intend to raise capital through an equity issue or by cutting it’s dividend.

The chart seems to support this:

A similar story to the Barclays chart. Resistance is at 413p, 452p (MA) and 505p. Support is at the previous low around 320p.
We finish with a similar look at the FTSE 100, with an additional MA. Here is the chart:

It looks as though a breakout to the upside is in play. Important resistance is at 6002.

Without wanting to sound too bullish there seems to be more optimism visible in the bank charts than you would see in the newspapers. A situation worth watching.

Market Snippets

 FED: Gov Mishkin’s Conclusion: “In recent months, the Federal Reserve has faced a more difficult policy environment as a result of disruptions to the financial markets. We have attempted to address the
resulting challenges by using four tools (OMO, DR, TAF, lower FF)… Although financial disruptions present one of the most difficult challenges that central banks can face, I believe that these measures
have been appropriate for achieving our macroeconomic objectives of promoting price stability and maximum sustainable employment.”

FRANKFURT (Thomson Financial) – HSBC and Royal Bank of Scotland have signalled their interested in acquiring Deutsche Postbank AG, daily Westdeutsche Allgemeine reported in a pre-released article from tomorrow’s edition. In addition, a Dutch bank is also interested in Postbank, the paper said, citing sources in Deutsche Post World Net AG’s supervisory board.

Deutsche Post, which holds 50 pct plus one share in Postbank, wants to examine the future of the unit in the course of this year, giving rise to hopes it may sell the retail bank. Commerzbank AG and Deutsche Bank AG have already declared their their interest in taking over Postbank.

Commentary by Mick Phoenix

on behalf of An occasional letter from The Collection Agency

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. The views in the article are for informational purpose only.