By L.A. Little of Technical Analysis Today
After looking at
Marshall & Ilsley's
Monday and the effect it had on the stock price, I'd like to turn to another regional banking concern,
FBR Capital Markets
, which also recently priced a secondary.
Almost 13 million shares of FBR Capital were priced at $6. The chart of FBCM is positive, contrary to the chart of Marshall & Ilsley. Why is that?
Long-Term Trend Positive
Looking at the longer-term chart first, the break of the downtrend line was an obvious and positive technical development for FBR Capital. It is noteworthy since prior to that FBCM had continually traded lower since its initial public offering in June 2007 until May 2009. Once the trend line broke, volume expanded and prices subsequently worked higher. This monthly picture is much more constructive than the analysis Monday of
The other longer-term developments are positive as well. In particular, there is an ascending triangle formation with the horizontal resistance line at the June 2009 swing high and again at the September 2008 swing high. Why is this positive?
In my work, it is always a positive when previous resistance points are attacked with volume. That is what we see on this long-term chart. Because this is a monthly view, it could take a few months to break those swing highs that now serve as resistance, but it is an undeniable long-term positive.
The Short-Term Take
Pushing down to the daily view, we can see some short-term hesitation in the upward progression of the stock price as a result of the secondary. After peaking at $7.25, the price came down hard once the secondary news made the rounds. That created the large gap down to the sub-$6 range. The gap back up occurred once the pricing was announced. Clearly, the market was relieved at the $6 price tag.
Viewed in a slightly longer-term context, we can see a reasonably well-defined channel that has developed on FBCM. The top of the channel is roughly $4.50 to $7.25 as shown below.
From a trading perspective, FBR Capital is positive. I would want to be trading from the long side -- although not at the current prices. At $6.30, the risk/reward equation doesn't add up. Something closer to $4.50 to $5 would create an excellent long-side trade (just watch that volume doesn't expand on the way down), or a breakout over $7.25 (in which volume expands) also would be a favorable setup.
Unlike Marshall & Ilsley, FBCM's secondary was well-received and seen as a positive. How do you know? The market tells you so in the way it trades.
The only problem with FBCM and the majority of the regional banking concerns is harbored in the weakness that is quite evident in the regional bank sector. You see, so far, we have viewed three banking stocks in isolation --
, Marshall & Ilsley and FBR Capital. But stocks don't trade in isolation. To increase your odds as an investor and trader, you need to broaden your perspective to include the sector that the stock trades in.
A chart of the
Regional Bank HOLDRs
exchange-traded fund clearly shows that an uptrend is in place, but that uptrend is suspect. What do I mean by that? Well, we'll tackle that thought Wednesday.
Until next time, keep trading the charts!
L.A. Little is an author, professional trader and money manager who writes daily on
, a free educational site for traders and investors. He has been featured in Stocks & Commodities magazine and is the author of