Is it all about to go wrong for NatWest’s share price?

The bank’s recent performance shows why blind belief in trend lines doesn’t work during Covid-19.

NatWest

We previously reviewed NatWest (LSE:NWG) on 4 January, explaining our thoughts on it weakening to 152p and hopefully a bounce.

The next day it hit 152p and started a bounce, one which reached a fairly useless 169p. The important detail behind the scenario was the proof that sufficient numbers of people are still watching trend lines, believing them to be important.

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We've experienced considerable doubts over the veracity of conventionally-drawn trends. Often, in these panic pandemic times, prices simply blast through visual trends as if they don't exist.

The reality with a popular share such as NatWest is that if enough people believe a trend line to be real, the trend line will be real - at least for a while. Unfortunately for NatWest, this collective belief in trend lines lasted just 10 days and we suspect things are about to go a bit wrong for the share price.

Visually, with NatWest breaking the uptrend since September, the next tripwire remains at the previous 152p level. Coming movements below 152p risk triggering reversal down to an initial 143p and a doubtless short-lived bounce.

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Again, our theory about sufficient numbers of people believing something should hold true. Achieving 143p will, more or less, match the share price low in December. We would warn that, if 143p is broken, especially on the initial surge down to such a level, our secondary longer term drop target calculates down at 126p. From there we think a real rebound can be expected, given the visual implications.

Earlier last year, when prices were being driven down due to growing Covid-19 hysteria, a very vague blue trend formed. Our above drop target of 126p comes pretty close to matching the point of trend break. Should 126p make a guest appearance, it shall provide an excellent visual point to take a long position and just see where things go in the months ahead.

As always, we're perhaps being too gloomy.

For NatWest to give hope for the future, the share price presently needs to exceed 172p, allegedly capable of bringing recovery to an initial 182p with secondary, if bettered, at 192p.

Visually, neither ambition is earth shattering, but does take the price into a region where it shall be regarded as achieving ‘higher highs’ with the promise of good things for the future.

Source: Trends and Targets. Past performance is not a guide to future performance

Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of interactive investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang or interactive investor will be responsible for any losses that may be incurred as a result of following a trading idea.