Even after sharp recent declines, the chart patterns show that four of the most prominent global bank stocks still have more downside potential.
As if the US debt-ceiling debacle and credit downgrade wasn’t enough, now the market has shifted its attention to rumors swirling in Europe about the solvency of several large banks and even an entire country.
France has come under the gun, as it has invested heavily to help prop up Italy and Spain, putting its own credit rating at risk in the process. Though the French banks received most of the attention, it is important to look at some of the other major global banks.
By applying basic chart projection techniques, we can get a better idea of whether this is the beginning or the end of the slide.
Click to EnlargeChart Analysis: Banco Santander (STD) is a $56 billion bank that operates primarily in Spain, the United Kingdom, and other European countries. The stock was down over 9% Wednesday. The weekly chart shows that over the past few weeks, it has completed a flag formation (lines a and b) that was last highlighted in March. (See “Two Stressed Out Euro Banks.”)
- 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
Deutsche Bank (DB) looks ready to close below important weekly support (line e) this week. The rally from the 2009 lows hit a high of $77.49 in October 2009, but failed to reach the 50% resistance of the decline from the 2007 highs at $145.77. The stock dropped 11.5% Wednesday to close at $40.36.
- 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
Click to EnlargeChart Analysis: Banco Santander (STD) is a $56 billion bank that operates primarily in Spain, the United Kingdom, and other European countries. The stock was down over 9% Wednesday. The weekly chart shows that over the past few weeks, it has completed a flag formation (lines a and b) that was last highlighted in March. (See “Two Stressed Out Euro Banks.”)
- 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
Deutsche Bank (DB) looks ready to close below important weekly support (line e) this week. The rally from the 2009 lows hit a high of $77.49 in October 2009, but failed to reach the 50% resistance of the decline from the 2007 highs at $145.77. The stock dropped 11.5% Wednesday to close at $40.36.
- 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
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