Medium Term Trades: Deutsche Bank and Barclays

August 2014 Stocks Projection

Our analysis is based on the upcoming European Banks Stress test and technical analysis on the monthly chart. In our prior research we have hand-selected the stocks that we may enter a the beginning of August. Recent weakness in the leading indices allowed us to realize a decent profit over our short trades in the DJ30 and FTSE100, but at the same time allowing us to exercise dip-buying strategies n the banking sector.

Deutsche Bank Technical Analysis

The monthly  chart may appear bearish at first glance. The pennant following the mass selling can only suggest further weakness is coming where breakout traders are sitting on the fence, waiting for the lower support to be violated by the market bears. The first alarm is the triple-bottom, which is a firm reversal pattern. The second alarm is, the bullish engulfing on the weekly chart where recent weakness provides a fair entry for buying in dips while forcing the technical indicators to positively diverge. The third alarming bell are the Bollinger bands. The price is trading outside the bands at the time of this writing, which may intensify the pressure for a temporary correction.

Deutsche Bank Monthly Chart

Click on the chart to enlarge:

Deautsche Bank 01/08/14

Deutsche Bank Technical Outlook August 2014

We are also bearing in mind that over 65% of the trades in the stock market are automated (Algorithmic trading) there is a fair possibility the stock may push lower, attracting dumb money to enter the shorts, only to be slaughtered by the market bulls. We cannot predetermine the push lower so we are bearing in mind we will have to temporarily absorb the losses. Our projection for Deutsche bank is to reach 34.50 following the EBA stress test results.

Deutsche Bank Trade Details

Long @ market price (25.24)
Take profit: 34.50
Protective stop: 21.30
Estimate duration: 60 days
Risk Ratio (RR): 1 : 3.2 (approx.)

Barclays Bank Technical Analysis

We see quite the opposite in Barclays. Although the monthly support remained firm we cannot ignore the established downtrend in the stock. Recent gains appear to be merely corrective before further weakness will materialize. There are multiple resistance levels that will affect the protective stop for the short trade.

Barclays Monthly Chart

Click on the chart to enlarge:

Barclays Bank Technical Analysis August 2014

Barclays Technical Outlook August 2014

The stop must be placed above 260 or employ a tighter stop, which may be triggered and then re-enter the trade at a higher price. After a long deliberation we have decided to enter at current price and absorb any losses until the UK stress test results, which we believe will be the fundamental trigger for the mass bearish pressure. We stressed in our prior analysis that Barclays could trade below 60 but it is rather early to set such a target for this trade.

Barclays Trade Details

Short @ market price (223.60)
Take profit: 143
Protective stop:  264
Estimated duration: 70 days
Risk Ratio (RR): 1 : 2

06/08/14 UPDATE: Barclays is trading at 217.15 at the time of this writing.  We are closing 10% of the trade at market price. Deutsche Bank us trading at 24.54 at the time of this writing. We are maintaining our bullish outlook for Deutsche Bank.

25/08/14 UPDATE: Deutsche Bank is trading at 25.71 at the time of this writing. We are closing 15% of the long trade at market price. Barclays is near our short entry, no action is taken at the time of this writing.

26/08/14 UPDATE: Deutsche Bank continues to trade higher, ending today’s session at 26.25. At the same breath, Barclays closed at 225.30, slightly above our bearish entry.

27/08/14 UPDATE: Deutsche bank is trading at 26.63 at the time of this writing. We are liquidating 25% of the trade at market price and shift the protective stop to 25.65. Barclays is trading at 226.10. Our bearish projection for Barclays remains valid.

29/08/14 UPDATE: Deutsche continues to retrace lower, trading at 25.87 at the time of this writing. We are closing 10% of the trade at market price.

01/09/14 UPDATE: Deutsche Bank is trading at 25.86 at the time of this writing after nearing our protective stop loss order, which we shifted above our bullish entry. Barclays is trading at 223.70 at the time of this writing, within a close proximity to our bearish entry. No action is taken.

03/09/14 UPDATE: Deutsche bank is trading at 26.75 at the time of this writing, assuring our long trade in the stock is in a decent profit. We are shifting the protective stop to 25.73 and close 15% of the trade at market price. Barclays is trading at 227.35 at the time od this writing.

04/09/14 UPDATE: Deutsche Bank is trading at 27.00 following the ECB decision to slash rates and introduce ABS program, details will be revealed on 2 October, 2014. We are shifting the protective stop to 26.00, no partials realization at this stage.

05/09/14 UPDATE: For a healthy book balancing we are closing 20% of Deutsche bank long trade at market price (26.92).

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