Metro Bank: here’s where things could bounce
The challenger bank has been shorted by many recently. Our chartist looks for a catalyst.
22nd October 2020 09:49
by Alistair Strang from Trends and Targets
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The challenger bank has been shorted by many recently. Our chartist looks for a catalyst.
Metro Bank Plc (LSE:MTRO)
Reputedly one of the shares with the most short positions, we last reviewed Metro Bank (LSE:MTRO) at 99p when we warned of the cost of dog biscuits and the risk of reversal to 60p. In what almost feels like a clickbait headline!
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But this very precise reversal is quite interesting, especially for those nursing short positions.
We like to remind folk of the importance we attach to drop targets.
What occurred with Metro Bank on 29th September illustrates our level of hysteria quite neatly as the share price finally exactly hit our drop target, closing the day at 60.94p.
It neither twitched below the 60p level nor did it close below our target level.
As a result, we're inclined to believe a new trend has commenced as our ‘ultimate bottom of 6p’ criteria should no longer be valid.
When targets are met we assign considerable importance to price movements on the day of success, and Metro did not break target.
This results in a situation where we're pretty far from convinced further extreme reversals are on the cards, especially as the share price has tended to muck around aimlessly since hitting our 60p level.
While we must concede it has drifted, almost teasingly, below the 60p point on a few occasions, we wonder if this is a symptom of the market playing games with traders’ positions?
By adopting the attitude that a new trend has commenced, about the safest reversal potential is of below 58p bringing a trip down to 52p and hopefully a proper bounce.
This, obviously, does not represent a killer short position.
Visually the share price is doing a pretty good impression of a chart pattern known as a 'double bottom', one which is often assumed to herald a coming bounce.
In the case of Metro Bank we need see the share price rise above 72p to be convinced, as this calculates with an initial ambition of 83p.
Visually this should challenge the ruling downtrend. If exceeded, our secondary computation works out at 96p and probable hesitation. Only with closure above 96p shall we dare become enthusiastic for its 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.
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