My Technical Take on a Random Bank Stock

I thought I'd make a back of the envelope technical analysis on one of the beleaguered bank issues.

As could be expected, the daily chart (first chart above - click to enlarge) does not tell us much except the obvious, namely that this stock is in a sustained downtrend on all timeframes. All three simple moving averages, the 20, 50 and the 200-day are in a downtrend and the security itself is below each and every one of them. Even more distressing (to a long) is the fact that the downtrending has accelerated since 5/30/2008 after a sizable gap down from 112.17 (a level that should act as a formidable resistance if and when the stock rebounds).

The question is: "will it ever rebound?" And it's a legitimate question as the current situation looks very bleak. But as always in technical analysis, one can (indeed should) always find some kind of silver lining and build the contrarian view. The only potential non-bearish clue that can be gathered from the daily chart is that the stock is extremely oversold with a 14-day RSI along with its 5 and 20-day moving averages at rock bottom levels. So in theory, if (and that's a big if) there were a rebound here (some kind of monster recapitalization story, a takeover.... it has to be spectacular), the upside could be sizable. In that scenario, a quick (but probably short-lived) move to below resistance around 110 could (and we're dealing in pure hypotheticals here) materialize.

To feel a little better about this stock longer-term and to start visualizing support levels as opposed to resistance levels, one has to move up the timeframe arpeggio and take a look at the weekly chart, the second one above (click to enlarge). One remarkable thing here is again the extreme oversold character of this chart with an RSI that's as low as it's been in 5 years. That tells us that an intermediate-type rebound or at least a sideways move to relieve this oversold condition should be imminent (on a weekly chart this could mean in the next 2 months). The problem is that the stock could go down considerably more before that happens. The stock has obviously broken several support levels. The next support I see is the plateau around 76 reached during June and July 2005.

In conclusion, if I had to go out on a limb and give one potential scenario for this stock (which will probably look ridiculous in a few weeks but hey I don't care, I am not a professional analyst), it would be that the stock kind of drifts down from here to around 75 and then either moves sideways or slightly up from there. For a more forceful rebound, some kind of spectacular bank-specific announcement would be required. As far as having this in a long-term account.......If your long-term is 20 years then OK. Otherwise, I don't see anything at this point even hinting at a basing process let alone a bullish reversal.....at least as things stand at this very moment (tomorrow's another day).