Zak Mir on the FCA, PRA & The “Shutting the stable door after the horses bolted” authority!

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I read with interest today that the cost of the new financial regulators who include the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) will be £664 million this year – £128 million more (24%) than the failed FSA which they replace.

I also have no doubt that they will fail in their tasks in some monstrous way that we cannot yet imagine… Although, per usual, probably this will be in relation to the UK banking sector which, despite all the attempts to paper over the cracks, and five years plus of ultra-low interest rates has yet to full justify being bailed out.

However, I will not be any more critical on this occasion other than to point out how the cost of more than half a billion pounds appears to be rather on the steep side for organisations whose predecessors were unable to offer any significant protection from any scandal or financial disaster. All they did give us was offer a false sense of security, and a hefty bill for the taxpayer!

It does not seem to be much of a bet to suggest that this state of affairs is likely to continue, helped along by horrific red tape and disproportionate/inappropriate responses to alleged misdemeanours in this area. Tough on the parking tickets and soft on the axe murderers continues to be the governing theme. That said, to save money, combining the FCA and PCA to create the Shutting The Stable Door After The Horse Has Bolted Authority could be a winner!

So, to celebrate £664 million worth of taxpayers’ money going down the pan, I am today looking at the technical position of leading UK banks after what has been a rather soft period for their share prices in recent months.

As far as Barclays (BARC) is concerned, we see the shares in something of a no man’s land in terms of the price action. This is because support has been initially found at former early 2012 resistance in the 230p zone. But so far, the dead cat rebound has been unable to reach back to test the last 246p support as new resistance. Indeed, the best we have seen so far is an intraday peak of 242p. This suggests that even if you are a fan of the shares/the company, it may be best to wait on at least an end of day close back above this new resistance before making a decision to bargain hunt. That said, given that we are towards the floor of a falling price channel from June last year, the bias here may be for aggressive traders to be to regard the stock as a bottom fishing situation given the recent substantial share price losses.

As far as the current technical position of perennial money-losing bank RBS (RBS) is concerned, it can be seen how the charting set up is not a million miles away from that of Barclays described above. This is because we have an initial rebound off the floor of a falling 2013 price channel, with the support line in question running through £2.95.

The implication on a simple basis would be to suggest that while there is no end of day close back below the 2013 price channel floor that we should be on alert for at least an intermediate rebound, perhaps as high as the initial March trading zone between £3.20 and £3.30. A feature which to me particularly stands out in this situation from a charting perspective, is the way that it looks as though we are currently being treated to a bear flag break to the upside. Such a wrong footing move for traders usually indicates that any recovery is to be a sharp one.

Finally, as far as HSBC (HSBA) shares are concerned, we are also being treated to what I perceive to be initial recovery moves. This is because the stock has bounced off the floor of a descending price channel from July with the floor of the channel running towards £5.90. What also helps on the technical side is the way that earlier this month the share has displayed what is likely to have been an exhaustion gap to the downside. If this is the case, then an end of day close above the top of the gap at £6.13 later this week could be enough to deliver a decent recovery. At the very least, the favoured destination while above the March gap top would be the initial resistance of this month at £6.35 to be delivered as soon as the first half of April.


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