European Banks and Italian Banks: a Cycle with different Stages
The European banks, which stocks are represented by the index Stoxx Europe 600 Banks, one of the 19 supersectors of the Stoxx family, had sharply underperformed the market until July 2016.
The course of the banking sector had reversed in August when the index started to climb and its weakness turned into strength. The most convincing signal at this matter occurred the last October, when it broke on the upside moving average at 200 days, just one month after the historical down-trending line has been interrupted. In just six months, 50% of the down-move 2015/2016 had been recovered, at the beginning of 2017 the index of the European Banks had risen 50% from the lows.
The Italian stocks in the sector have been even weaker and more volatile. A look at Figure 2 shows the FTSE Italia All Share Banks, a sector index of the Italian equity market, that after losing more than 60% between 2015 and 2016 started to rise in the second half of last year. Yet, the recovery has been less strong for the Italian banks compared with their peers. The lower windows of the chart in Figure 2 represents the relative trend of the Italian banks against the European sector. Such a relative performance has been negative until the end of November 2016 when the sector started to gain strength only at the end of the year, thanks to a sharp rally above the 200 days moving average. But if the European banks have recovered about 50% of their former yearly loss, the Italian banks are lagging behind with a mere 30% retracement. An eventual extension up to 50% would mean an additional performance of 25% for the Italian banks.
The recent start of Banco Popolare at the Italian market brought a wave of optimism. BPM started to operate in January by the merger of Banco Popolare and Banca Popolare di Milano (BPM). The chart in Figure 3 is showing a very interesting technical pattern. After months of amazing weakness between 2015 and 2016 (-85% high to low) this stock is gradually building a base since the last summer. It traded sideways throughout the second half of 2016 within the wide range 1.75-2.75 but since the trading of the new shares began in early January, it broke on the upside above the 200 days moving average. Such break concludes a reversal pattern that, according to the traditional Technical Analysis, paves the way for a recovery towards 3.60 but the upwards potential would be much higher in case of a trend reversal.
Alberto VIVANTI – SAMT Vice President – Graubünden and Liechtenstein Chapter– alberto.vivanti@samt-org.ch
Disclaimer: the above article is for general information and educational purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.