Zak Mir on “service charges”, cartels and the banking sector

It will perhaps not come as much of a surprise to many to learn that Lloyds Banking (LLOY) has managed to increase its profits by 22% as reported last week given that “service” charges appear on my company account with or without “services” being provided! In fact, the worst example of late was the £30 I was charged to make a bank transfer and which I was forced to do in person at a branch after my account had been hacked into. In legal parlance it is said that “the case continues…” Well to me, as far as the UK banking sector is concerned, it is a case of “the cartel” continues!

While the forthcoming IPO of TSB in June could shuffle the monopoly situation a little, giving someone 5% interest on a maximum balance of £2,000 a month is hardly earth shattering. All this may go to explain why shares of the Black Horse bank have, over the past year, managed to gallop to the upside despite a couple of chunky HM Government share sales. The Chancellor George Osborne described the stock trading in the 70’s as “decent levels”, clearly he is someone who has forgotten that before the merger with HBOS (forced upon Lloyds by the mad Scotsman Mr G Brown!) that the stock was trading at 500p plus and paying a 5% plus dividend. Maybe it is question of “don’t get mad, get even” and so buy the shares in the hope that the dividend will be restarted soon?! Godot and waiting spring to mind…

Anyways, what can be said on a technical basis, is that we are looking at a very constructive looking daily chart for Lloyds Banking (LLOY despite the dip below the 200 day moving average – now at 77p – during March. The issue for the bulls though remains governed by the failure of the stock to fill the gap to the upside in July and which is positioned at 68.9p. Indeed, it was quite a coup for the bulls that the shares have thus far not touched this level as new support, despite us being in the aftermath of a major stake sale.

The position in the shares now underlines the bear trap effect, as well as how effective the “failed gap fill” rule can be for technicians trading a stock or market. What can be said is that at least while there is no end of day close back below the floor of the latest gap to the upside through the 200 day moving average at 75p – itself one of the most significant technical signals – that the upside here should be towards the 2013 price channel top at 90p, a long awaited destination and perhaps one it will reach in June / July.

To me, there is no such thing as a good bank, a point underlined by the announcement that Barclays (BARC) is to form a “bad” bank! We do not have as much excitement on the charting front, rather more on the intrigue / controversy one and, shall we say, a “fat cat” zone as far as this company is concerned. It beggars belief to me that the banking sector has had year’s to explain to the general public why and how bonuses work or should work, and still shareholders continue to be caught up in the collective envy of those employees of Barclays who are at the top of the tree of capitalism.

As far as the price action of Barclays is concerned in recent months, the most apt description is we have witnessed a bear trap of first class credentials. We can see that the stock has been in a multi tested trading range over the course of 2013 and going into 2014 between 250p – 300p that did break down in March as the stock fell towards 230p. Cynics such as myself would suggest that this “manoeuvre” was a false break, albeit one which lasted some 6 weeks, long enough when accompanied by the bonuses row to most likely convince some traders that a lasting breakdown was on its way.

In fact, the unfilled gap to the upside for Thursday back above 250p underlines the way that this stock is likely to be back in business again in terms of its former 250p – 300p trading range. At the very least the stop loss on this idea can be an end of day close back below the 50 day moving average / late April bull flag –now at 243p. The initial target for the rest of May should be towards the top of the August 2013 price channel at 272p.