NatWest shares still possess potential to surprise

On Sunday evening I drove to the local town and collected a Chinese takeaway. The roads were almost eerily empty, and on arriving at the restaurant the situation was no different. The lady behind the counter solved the mystery with a smile, suggesting everyone was probably at home watching the World Cup. That explained everything. Just because football isn’t something I follow doesn’t mean millions of others aren’t. It served as a useful reminder that our own interests don’t necessarily reflect those of the wider public. Markets have an annoying habit of teaching exactly the same lesson. Something can appear quiet, ignored, or completely lacking excitement, only to surprise when attention inevitably shifts back towards it.

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Perhaps NatWest Group (LSE:NWG) shares have something in common with those deserted roads. At present they don’t seem to be generating the sort of excitement that attracts headlines every day, particularly compared with some of the more fashionable sectors of the market. Yet quiet periods often conceal the potential for meaningful movement. Just because something isn’t commanding everyone’s attention doesn’t mean it lacks the ability to produce worthwhile gains once momentum begins to build.

From a technical perspective, the immediate hurdle remains relatively close. A move above 676p should have the potential to trigger a fresh leg higher, initially targeting around 692p. This level is important in its own right, but it is what follows that really captures our attention. Should the shares manage to exceed 692p with conviction, our longer-term calculations begin to project considerably more ambitious territory.

The secondary objective currently works out at around 736p, representing a respectable advance from current levels. More importantly, however, such strength would place the shares within touching distance of what we regard as the dominant longer-term attraction, centred around 750p. That level has featured consistently in our calculations and would represent the natural destination should buying pressure continue to build over the coming weeks. While markets rarely travel in straight lines, the overall technical structure remains constructive provided key support levels continue to hold.

Naturally, no technical outlook would be complete without considering the downside. Markets have an unfortunate habit of ignoring the most convincing bullish arguments when sentiment changes, so it always pays to identify the point where the picture genuinely deteriorates. In NatWest’s case, there is no reason for undue concern while prices remain comfortably above 588p. It would require a break beneath this level before we would begin to regard the current structure as having suffered meaningful technical damage.

Should such weakness develop, the first downside objective becomes 532p, where we would initially expect support to emerge. Failure there would unfortunately suggest considerably greater deterioration, opening the possibility of a more substantial retreat towards our secondary target around 481p. At present this remains the less likely outcome, but markets reward preparation rather than complacency.

For now, however, the emphasis remains on the upside. Sometimes the quietest evenings, the emptiest roads and the least fashionable shares end up producing the most rewarding journeys. NatWest may not currently be attracting the same attention as some of the market’s more glamorous names, but from where we’re sitting the technical picture suggests it still possesses the potential to surprise.

Source: Trends and Targets. Past performance is not a guide to future performance. Important: Trends and Targets charts only incorporate official share count consolidations, ignoring rights issues where investors have a choice as to whether to participate.