Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 08 January 2013 at 10:50 GMT

Triangle break out signals comeback to Commerzbank

Technical Analyst / Saxo Bank

Trade parameters

  • Position: Enter into a long position at current price level
  • Initial stop: EUR 1.46 corresponding to approx. 8 percent below current market price.
  • Target: EUR 2.38 corresponding to 23.6 percent retracement of the last major bear move from EUR 6.47 and triangle target.

Resistance: 1.65. 1.79, 1.95 and 2.38
Support: Upper descending triangle trend line.
Ticker: CBK:xetr

Banking is not the most popular sector at present. That should however not keep investors away from this sector since a lot of good deals can be made. Many banks are trading at a price/book below 0.50. One of those depressed bank equities is Commerzbank in Germany. With a price/book ratio of 0.34 compared to Deutsche Bank’s 0.58 it looks cheap, but of course there is a reason. But I believe it is still worth taking a look at.

Descending triangle break out
Commerzbank has lost 95 percent of its market value since 2007 where it peaked at EUR 38.20 and in the last year has been trading in a continuous lower and narrower range in the past year between EUR 1 and 2. On a weekly chart it has formed what looks like a descending triangle which is now breaking out of upward ranges and could soon test the peaks from Q3 2012 at around 1.65, which is also the 50 percent retracement level of the 2012 bear move.

Commerzbank weekly

Divergence on Relative Strength Index (RSI) has been building up over the past two years indicating a bottom in the stock and RSI is now testing the 60 threshold that is the threshold signalling an instrument is in bullish mode (when breaking above).

The upper Bollinger band is starting to widen and a break above 1.65 could further fuel the bullish move. According to the rule of a descending triangle on Commerzbank we get a target of approx. 2.40 and that target could be reached in 2013. There are of course resistance levels one should look out for before we reach that level and corrections will occur. Resistance at around 1.95 which looks pretty strong and one could take profit if this level is to reached.

On a daily chart we can see that Commerzbank broke out of the bearish trend line in the triangle and experienced a minor throwback to test it and then took off from here in the 2013. It is now breaking out of its trend channel and both Bollinger bands are widening, confirming the trend which is in a developing stage. RSI is bullish and there are no signs of divergence. MACD (Moving Average Convergence/Divergence) signals a longer term bullish trend.

Commerzbank daily

Risk: Falling back below its year-high around 1.46 can demolish the bullish picture leading to new lows.
Bad political and macro news from southern Europe could cause renewed anxiety about the bank’s assets and loans to that region.

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Kim Cramer Larsson Kim Cramer Larsson
Moving stop to 1.58.


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