Patrick McGrady's  Instablog

After consolidating for over a year, or all of 2010, European bank shares look ready to continue their 2009 upward momentum.  The foreign banks that look most attractive are the large ones, such as Deutsche Bank (DB), Credit Suisse (CS), and Barclays (BCS).  Deutsche Bank and Barclays are currently trading below their book value at 0.70.  Credit Suisse is trading slightly higher at 1.5 times book value.  Although, CS is trading at a slight premium, it is partly due to CS's low price-to-earnings growth ratio (PEG) of 1 and its 3.91% dividend yield.

The below table is a fundamental ratio analysis, which contains forward price targets for DB, BCS, and CS.



After looking at the fundamentals, we next need to look at the technicals or charts.  Below are the long-term technical charts for DB, BCS, and CS.  As you will see, since shooting up in 2009 on very high volume, the charts show the European bank stocks consolidating (trading slightly downward) all of 2010.  This consolidation is technically known as a bullish wedge formation.  A breakout above the bullish wedge's upper resistance line usually follows and confirms the bull trend.  In addition to the stock's price consolidation, the relative strength index (RSI) for DB, CS, and BCS has been consolidating right around the 50 line in what is technically known as a volatility wedge or squeeze.  This proves bullish because it confirms the stocks' price action.  Finally, as we look at the on-balance volume (OBV) indicator for DB, CS, and BCS, we can see a clear bullish divergence.  As the stock prices for DB, CS, and BCS pullback in consolidation, the OBV indicator stays well above its 2009 trough and its support line.  In comparison to the fundamental price targets for DB, CS, and BCS, listed above, the technical price targets seem to be in-line.

Deutsche Bank (DB):


Credit Suisse (CS):



Barclays (BCS):



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