Why I expect Barclays shares to stage 'surprise' recovery

After moving sideways for the past month, shares in the high street lender may be about to do something interesting, believes independent analyst Alistair Strang.

In keeping with what’s become tradition in the retail banking sector, Barclays (LSE:BARC) managed to spend the last three weeks doing very little, failing to trigger any viable upward motion, failing to trigger anything seriously downward. What’s proving a little befuddling is any attempt to compare the bank's price history with the history of the sector index. At first glance, the pair seem pretty similar but unfortunately, everything fell apart at the start of this year.

When we review the wider banking sector, we’re supposed to believe optimism should be justified.

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According to the sector index, the value broken through the downtrend since 2007 at the start of this year and has pretty rigidly adhered to “our rulebook” in the period since, and despite a few sessions of amateur dramatics, utterly failed to close a session below the point of trend-break (3,250 points).

This behaviour leads us to conclude the sector is simply awaiting an excuse to eject itself toward the 4,000 level sometime soon.

Conventional wisdom suggests Barclays should be following a similar trajectory to the sector index, but this year conventional wisdom joined political integrity as both appear to be taking a holiday somewhere far, far, away.

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

A quick glance at Barclays below reveals a broad similarity between the two entities until the start of this year, when something pretty important appears to have changed, hence our confusion.

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

While the sector index cheerfully launched itself into 2023 with a break above the trend, Barclays followed suit, yet ran out of enthusiasm by mid-February, when the market opted to manipulate (gap) the bank's share price back below the historical Blue downtrend.

Normally, we would expect such behaviour to promote the potential of impending reversal down to 115p eventually, something which has obviously failed to happen. The reversal logic has now changed, requiring the share price to close a session below 138p to trigger an ambition of reversal to an initial 128p with secondary, if broken, at 115p and hopefully a solid bounce.

Unfortunately – or perhaps fortunately, due to the behaviour of of the sector index - we’re pretty far from comfortable predicting reversals against Barclays.

Instead, we’ve a sneaking suspicion some surprise recovery may be awaiting an opportunity, the share price needing above 165p to hopefully trigger a twitch in the direction of 176p. With the share price presently trading around 159p, it certainly doesn’t need much work to hopefully kick things into life.

Our secondary, should 176p be exceeded., becomes especially interesting, calculating with the potential of triggering a surge to 221p and some probable hesitation.

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

What’s mildly humorous, an article over the weekend suggested investors should make an effort to select those sectors/companies which international governments will protect at all costs. Obviously, the biggest banks and mortgage houses feature, the biggest aviation companies, essentially any of the ‘too big to fail’ companies which pride themselves as being able to count on a bailout, if market conditions change unfavourably.

The only problem we experience, with the conclusion of such an article, comes from the salient detail these behemoths are now all suffering from dire share price movements, doubtless due to government bailouts taking the shine off the way the company is perceived. Even in Germany, Deutsche Lufthansa AG (XETRA:LHA) who aggressively dug themselves out from under the government, has a share price which is struggling to move above its pre-pandemic level and, in any sort of fair world, it should be heading to €13.24 rather than floundering around just above the €9 mark.