Deutsche Bank blows the b***** doors off
The beaten down shares of DB are now on the move. I recently put my Pro Shares members into DB while also penning a Chart of the Week piece for Interactive Investor because I spotted an outstanding opportunity for a Buy Low Sell High campaign. This is the monthly chart I posted earlier this month that lead me to that conclusion:
And this is what I wrote earlier this month
There are very few pundits that have had a good word to say on this major German bank. It is not hard to see why, as they have made headlines continuously with their shady dealings towards clients as dodgy high-risk derivatives were dumped on them to generate large fees The pressure on salespersons was high in the era of negative interest rates -as it still is.
Income from trading has fallen and investors cannot see how this could change in the near term. But if bond yields are indeed rising (as I have been pointing out in recent COTWs), the same dynamic that is pushing up UK bank shares (Lloyds and Barclays, which I have highlighted recently) should be at work with DB.
And that is why I am looking at it very favourably to add to my Buy Low/Sell High list since bullish sentiment is on the floor and the share price is extremely low.
The key feature is the three down off the major high in May 2007 at 108 euros accompanied by a very large momentum divergence. The shares have only now pushed above the pink downtrend line to help confirm the low is very likely in at the ‘c’ wave low at 4.40 euros at the Corona Crash low a year ago.
But how the mighty have fallen! That is a decline of 96% in fourteen years – and destroys the main prop behind a universal ‘Buy and Hold’ investing policy.
My first major target is the 20 euro area and after that, I have targets at around 38, 55 and 70 euros over the next phase that should last many months, if not years. Latest trade is 10 euros and only a sustained move below the 7 euro level would cause me to amend my stance.
And on Wednesday the company issued its Q1 results and astonishingly, they not only beat analysts’ estimates, but they were unexpectedly positive large numbers – as opposed to the negative ones forecast by most analysts. Out of about 20 analysts, only one had a Buy rating before the results. Consensus was highly negative – and that is when a correct contrarian analysis can really pay off. As Michael Caine in The Italian Job had it, they blew the b***** doors off, but weren’t supposed to.
And with the huge momentum divergence on the chart that lead me to expect imminent upward surges, that was indeed what we saw with the daily gain after the Wednesday results an impressive 12% to the 11 euro region. A short squeeze is in progress. Remember, this was about the most hated bank on the planet – until Wednesday, that is.
And that, my friends, is why I always look out for momentum divergences when I suspect a trend change is imminent. My general rule is that on reversals, the bigger the divergence the sharper the reversal – and this is a textbook case. But of course, you had to be ready for it. If I had simply guessed the low was in with no method to guide me, I could have entered too early way above my actual entry and suffered huge losses. That is not my style. Anticipating sharp reversals with pinpoint timing is a much better tactic.
Big Tech FAANG earnings are blockbuster – but not all
It is no secret that some of the Big Tech names are having a great pandemic – and leading the pack is Amazon which has just reported Q1 earnings has blasted through expectations. My latest COTW for Interactive Investor suggested this wave pattern on the weekly chart I posted before Thursday’s results
Wave 4 is a classic three down inside a lengthy triangle and I suggested that Thursday’s results would likely trigger a move into new ATHs above the wave 3 high. And lo and behold, that is precisely what occurred with a push up to the $3,650 mark. I also suggested that when a new ATH appeared, I will be starting to look for a top since all conditions for a complete five up have been fulfilled.
And when wave 4 occupies a triangle, wave 5 is usually a sharp thrust up with a swift reversal back down. With the current pull-back off Thursday’s high, is this what we are seeing play out?
Last year, investors invested heavily, anticipating super earnings during the pandemic and boosted the shares by a stunning 120%. My question is this: has this performance done enough to take account of any future expectations for the company? After all, just about everything has gone right for it during the pandemic but could there be problems afoot, such as growing antitrust moves by regulators that could lead to an eventual break-up of the business? Also, with consumers getting more or less back to normal this year, will growth slow down?
As usual, the story will be in the waves!
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The euro hits a major trendline, kisses another and heads lower
The euro is one of the key markets I track avidly as it inversely follows the path of the US dollar – the pivotal global market. I maintain all investors/traders should pay heed its movements. As the world’s reserve currency, it reflects interest rates, global trade and commodity prices.
And the euro has made a surprising significant advance since last year which was not reflected in the economic data. This advance was more a reflection of the bearish dollar sentiment that prevailed. But it appears this euro strength may be weakening – and presenting a significant trading opportunity.
Here is the daily EUR/USD
I have my familiar 13-yr trendline off the 2008 ATH a nd the black trendline that I believe is an important line of resistance. And last week, the market rallied to plant a kiss on (or very near) it. That should now kick off a major third of a third wave down as the dollar gains strength. And that would fit in nicely with the state of sentiment – the market remains very bearish the dollar as all they can see are the developments in the USA and are ignoring those in the EU at their peril.
Further thoughts on the Great Asset Mania
A visitor from Mars would very likely be furiously scratching their heads at the latest lunacy appearing on the scene – the NFT (non-fungible token). These are digital images stored on a blockchain with a unique signature that cannot be copied. The image can be copied, but not the signature. Last week, I noted a perfectly ordinary piece of digital art NFT had sold for about $1//2 million. And another sold at auction for over $1 million. And the first infamous one – Beeple sold one at Christie’s for $69 Million. There is even a digital coin for them.
Just google “NFT art finance” and you see ‘Huge price increase/Massive Increase Coming/Price Explosion Soon‘ I guess they are bullish. And manically so.
So am I missing a trick here? Should I take a snap of my dog, create an NFT and put it up for auction? Or of my car, or my muddy wellies? The mind boggles. It mostly boggles at the sheer madness that pervades this and many markets today.
Up to now, we have seen a huge majority of IPOs rally after launch that are losing money. And the advent of the SPACS (start-ups that have no business plan whatever) – investors hope they will find something profitable. As we all know, hope is not a reliable investment strategy.
And the WallStreetBets affair in worthless shares such as Gamestop. Yes folks, fundamentals such as earnings, business model, book value are totally ignored and faith and hope dominant.
And these are ideal conditions for a top and a flare-out.
Yes, the sheer speculative frenzy has reached epic proportions. Headline writers are calling this the ‘start of a new era’ as lockdowns ease. But that’s what they said in 2000 at the height of the dotcom boom (and the Nasdaq then lost 78%).
Loyal readers know that for many months I have been open-mouthed in amazement as stock markets have ignored all of the negative news and have risen to new heights driven by the ‘stock markets always go up’ mentality.
Many believe the ‘wall of money’ to be unleashed as lockdowns ease will spur economic growth – and boost share prices. That may indeed be the case for shares that have been battered down (bank shares, especially). But the leaders of the pack in the indexes – the FAANGS of this world – which are on huge valuations are vulnerable,
Perhaps Amazon (see above) offers a clue we are there. Tesla is well off its highs and the dollar seems to be back in rally mode as it anticipates interest rates moving up off the floor sooner rather than later. And if the dollar does stage a rapid advance from here and liquidity starts to dry up, stock index tops will surely appear pretty soon. I am on high alert.
