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Chart of the week: Crunch time for Lloyds Bank shares
By John Burford | Tue, 29th August 2017 - 13:31
Lloyds keeps heading south
With North Korea not only firing a missile across Japan, but also across the bow of the Great Stockmarket Bubble, I thought I would take another look at one of my favourite shorts in the FTSE 100 (UKX): Lloyds (LLOY).
"And last week, the shares hit the 73.50p high on a large momentum divergence. This is a very significant spot. Not only is it the Fibonacci 62% retrace of the entire downtrend, but it is also at the region of the wave 4 high of the wave down. This is a typical turning point for relief rallies. Thus, the 73.50p region is a place of very high resistance to further rallies.
And so it is proving with the shares currently trading at 70.20p as it bounces down off that solid resistance area.
The odds are very high that the 73.50p level will represent a very formidable barrier to further gains and the path of least resistance is down for now."
I wrote this at a time of bullish sentiment, which was centred largely on the high dividend yield and the feeling that the bank's PPI costs and bad loans had been absorbed.
The typical investor will go along with this bullish sentiment because most are herding in an unconscious desire to be part of the in crowd that includes some prominent "experts".
If a well-known money manager proclaims he/she holds millions of shares and is setting a higher price target, who is to disbelieve them? They should know, shouldn't they?
The untypical investor will acknowledge the opinions of others, but will do their own research, knowing that when the vast majority of opinion goes one way, it is time to look towards taking the other side of that trade.
That is my approach because I know that the published opinions of money managers is when they are "talking their book".
It is human nature to talk up your investments publicly because to do otherwise would be seen as being indecisive - and in finance, exuding confidence is a must.
Private investors/traders have no such demand on them. We are able to think for ourselves with no requirement to toe the party line!
So, back in June I believed the 73.5p rally high would be a major turning point and the next move would be down. Let's see how this has been working. Here is the daily chart showing the rally off the plunge low last summer:
The market has in fact been moving down since that high, marking it as a very important level.
I have a very pretty blue trendline, and when the market bounced off that support, it then moved lower and finally broke it a month ago and has been moving lower ever since.
It has now reached the Fibonacci 38% support this morning and is currently testing that support. If that gives way soon, I expect a further move down to the Fibonacci 50% at around the 60p area.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.