Companies in all walks of business were crushed during the recent market collapse that began in the final week of February as coronavirus fears escalated. With businesses globally temporarily closing their doors because of social distancing orders to control the spread of the virus, the ramifications of COVID-19 caused traders to mercilessly pound the sell button in the panic.
Banks were clobbered as central banks slashed interest rates near zero, the yield curve was flat and it became apparent that people were going to get moratoriums on paying their bills. Many banks, including Barclays Plc (NYSE:BCS), did not hesitate to let shareholders know they would be suspending dividends and stock buybacks, which further added to negativity about financial stocks.
We're not saying the worst of the COVID-19 pandemic is over - with respect to either the disease or the economic implications - but we certainly aren't against nibbling at positions in big banks like Barclays.
Those that remember the Great Recession know banks weren't prepared for it (they were, in fact, largely responsible for it). After plunging to $2.07 at the height of that crisis, Barclays rebounded to $19.35. Plus, the time is different. Banks are stronger than back then.
BCS didn't plunge to Great Recession levels, but it did skid from over $9.00 per share on February 21 to a low of $3.41 on March 19 before starting to recover, including hitting a high of $5.22 on March 26.
Shares have continued to bounce around, just like the broader markets have been doing, slipping back to $3.82 on April 3 and then rising to $4.88 with a gain of 6.8% on Friday. We see resistance at $5.00 and then more at $5.22 for BCS.
Because of an open gap from $5.42 to $5.79, we're looking for BCS to build a little momentum in the coming weeks. Our price target is set at $6.00, just beyond the closing of the gap.
There are also some open gaps to the downside, as BCS has been quite jumpy lately. There is support at $4.50 that we'd like to see hold, but if that doesn't, it won't be a deal-breaker for us. Our stop/loss is going at $4.27, just below a gap that is open to $4.28. If that gap is filled and BCS keeps dropping the risk about where it is going is simply too great.
Looking at the futures for Monday morning, it looks as if stocks could come out in the red (although there is still plenty of time for that to change). The way that we play BCS is to look for an entry close to support at $4.50 if the stock moves southward initially.
The stop/loss and price target remain the same. If BCS opens flat, we still don't have an issue with snagging some BCS. For the sake of calculations, we'll use $4.88, meaning an upside of 23.0% to $6.00 and a risk of 12.5% to $4.27. If you could grab some at $4.50, the reward/risk profile improves to 33.3%/5.1%.
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