Ja, we are living in a pandemic. And yes, life is currently asking a little more of us than usual. And of course yes, the news is determined by the virus. But that can never justify completely losing sight of everything else that is really important: The jungle camp does not take place in the jungle. Wendler got married. Meghan has emigrated. Helene is still with Thomas and Herr Wulff is back with Bettina. Kate is not pregnant. Mr. Borjans and Mrs. Esken are still chairing the SPD. Mr. Boning was exposed as a frog. The bachelorette isn’t sure. Mr Trump plays golf, and another sack of rice fell over in China. To let a little seriousness take hold: The HSV did not rise, “The team” somehow not relegated, and Jogi continues.
Not so long ago it was a serious question whether European banks could go on too. Measured against their industry index, they were on the brink, and some even thought they were one step further. But then hope came with the vaccines, and financial houses’ stock prices soared even more than other industries in the November rally. The results are impressive: since November 1 of this year, the books have shown an increase of more than 40 percent.
Now it can happen that completely bombed-out stocks conjure up a wild rally on the trading floor. Most of the time, however, these price increases are only a flash in the pan. Too many then wanted to get a bargain too quickly, and that’s why these so-called Bear Market rallies usually fizzle out as quickly as they came.
Features of a trend reversal
The really exciting thing about the recent rise in the index of Euroland bank stocks is that its chart does not have the classic characteristics of an announced failure, but rather all the traits of a sustainable lower trend reversal. For example, it did not start its latest price explosion from a new all-time low, as so often in the past decade, but has already scratched the curve around 5 percent above it at 52 points.
It was also important that this banking index did not get stuck below the summer highs of 71 points in November, but rather overcame this level with flying colors and is even increasingly preparing to leave the extraordinarily massive resistance zone between around 73 and 78 points behind. Price charts that just want to lead the optimists back on the black ice can’t do that.
For me, the matter is relatively clear: bank stocks have left the valley of tears of the past eleven years behind them. You can count on them again and look hopefully into the future for them. The banking index should return to values around 100 points over the next twelve months or so.
Admittedly, that doesn’t sound that spectacular at first. 30 percent plus in the coming year, when in the past six weeks alone more than 40 percent were in – this is not the greatest cinema. But “hey”: It’s 30 percent more. Anyone who tries to get that done with bonds will have to wait until Saint Never Day in the current environment. However, one should not underestimate the resistance ahead of the index. The area between around 86 and 90 points is more than just striking. It is largely formed by the low point of the financial crisis in 2008 and 2009 and most market participants may still have very good or not very good memories. It is precisely there that one cannot expect miracles, but rather an at least long-lasting consolidation or correction phase. Should this, explicitly contrary to expectations, expand correctly, the credit institutions would probably find themselves in real trouble again: The chart of the Euro-Stoxx-Banken-Index can withstand almost everything, just not a repeated relapse in regions by 50 points.
Without a doubt, it is really good news that bank stocks have turned the corner. Much more important, however, is the message that is directly linked to it and already resounding above: The financial markets expect banks across Europe to have mastered their once existential crisis and are now able to look to the future with confidence again. So what started in 2007 when the bank index was almost 500 points has finally come to an end 90 percent lower. Perhaps the most systemically relevant of all systemically relevant industries will very likely no longer be the potential starting point for a systemic crisis in the foreseeable future. It couldn’t have been better.
So everything really important is told and the banking problem is solved. So we only have one real problem: the European soccer championship. How can we manage to give the others a chance and not to discourage them in advance with our overwhelming superiority? The Spaniards are unlikely to be of any help to us. Maybe the Faroe Islands?