Investment Banks Trading at Trendline Support

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Investment Banks Trading at Trendline Support

Investors lost interest in investment bank equities in 2018 as concerns arose about sluggish profitability due to slower loan growth and shrinking margins due to higher deposit costs.

“Banks are doing terrible because loan volume is anticipated to fall as interest rates rise since higher rates are tough for individuals to pay,” DoubleLine Capital CEO Jeffrey Gundlach told CNBC in October. The almost year-long trade war between the United States and China, as well as the difficulties in negotiating a sensible Brexit settlement, have thrown a pall over the once-loved financial industry.

Although the Federal Reserve (Fed) is predicted to raise interest rates at least twice in 2019, merger and acquisition (M&A) activity is expected to remain strong owing to ongoing, although slower, corporate profits growth and near-all-time-low interest rates in developing market countries. Furthermore, IPOs, particularly by technology firms, could continue to enhance investment bank profitability in the next year, with ride-hailing innovators Uber Technologies Inc. and Lyft Inc. exploring going public.

Traders who believe that the recent significant selling in investment bank stocks is overdone may look for trading opportunities in these three financial industry giants.

The Goldman Sachs Group, Inc. (GS)

The Goldman Sachs Group, Inc. (GS), established in 1869, is a worldwide investment bank specializing in securities trading, investment management, and institutional client services. Outside of the Americas, the New York-based corporation earns 40% of its net sales. As of December 20, 2018, Goldman Sachs stock had a market valuation of $62.96 billion, a 1.87% forward dividend yield, and was down 32.33% year to date (YTD).

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The share price of the financial institution began to fall in mid-April, with the decrease intensifying in November and December. Although Goldman’s stock chart seems to be poor, the price is now sitting on the lower trendline of a falling wedge formation, which may serve as a support level from which to stage a turnaround. Before going long, traders should look for a bullish candlestick pattern, such as a hammer or piercing pattern, to avoid catching a falling knife. Exit on a pullback to $200, when the stock meets resistance from the 50% Fibonacci retracement level and the 50-day simple moving average (SMA).Set a stop-loss order underneath the reversal pattern that was utilized to join the trade.

Morgan Stanley (MS)

Morgan Stanley (MS), with a market capitalization of $67.6 billion, offers a variety of financial goods and services to businesses, governments, and other financial institutions, including institutional securities, wealth management, and asset management. According to Bloomberg, Uber has chosen Morgan Stanley to oversee its IPO next year. As of December 20, 2018, the investment bank’s shares has returned -23% for the year, behind the S&P 500 Index by about 17%. The dividend yield on the stock is 3.01%.

Morgan Stanley’s share price has tracked gradually downward inside a declining pattern after reaching a YTD high of $58.35 in March. Swing traders could look for entry points around the channel’s bottom trendline at $39 per share. Consider banking profits between $44 and $45, where the stock may stall due to resistance from the 50-day SMA and the upper trendline of the channel pattern. To safeguard trading money if the price continues to decline, place a stop order below the entry candlestick.

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JPMorgan Chase & Co. (JPM)

JPMorgan Chase & Co. (JPM) is a financial services company that specializes in investment, consumer and commercial banking, as well as asset and wealth management, with over $2.5 trillion in assets under management (AUM).The corporation, headquartered in New York, operates via a network of approximately 5,000 locations. According to the previously mentioned Bloomberg piece, JPMorgan is heading Lyft’s first public offering. JPMorgan stock is down 6.7% YTD, trading at $97.29, with a market valuation of $323.53 billion and a dividend yield of 3.29% as of Dec. 20, 2018, beating the global banks sector average return by roughly 14% over the same time.

Throughout 2018, the JPMorgan chart has created a big double top pattern. The price has been oscillating inside a declining channel since September. Those expecting a rebound should enter once the price begins to reverse on the bottom trendline of the channel formation. Traders might wait for the relative strength indicator (RSI) to rise over 30 to confirm the bullish trend. Consider setting a stop several points below the entry price and taking profits between $108 and $110 – a region where the price encounters resistance at major Fibonacci levels, the 50- and 200-day moving averages, and the upper trendline of the descending channel.

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