Technical Analysis of GTBANK stocks for Monday, August 24, 2020
GTBANK, one of the sweethearts of the Nigerian Stock Exchange. A quick glance at the price chart of GTBANK stocks got me thinking. Will we see
GTBank breakdown once again, for the third time, at a 5+ month resistance zone of ₦25.50 or
GTBank breakout of the ₦25.50 resistance zone, waving goodbye to the shadow cast on it by the Coronavirus since the 5th March 2020, and look to rising by 22% and 35% respectively in the coming days and weeks.
If you are as excited as I am to dig into this GTBank study (yeah, I prepare it and you read it – you’re welcome), fasten your seat belt as we dive into the technical analysis of GTBANK stocks.
GTBANK stocks, like most stocks all over the world, took a pounding in early March when the Corona Virus was declared a pandemic by the World Health Organization. By 5th March 2020, it had lost about 28% of its value from the high price registered at ₦34.40 on 20th January 2020. It went on to lose a further 35% in the following three weeks, taking its total loss from its 2020 high to approximately 51.5%, trading at ₦16.70. The following sections will touch on three key analytics for improved decision making on trading GTBANK stocks.
Price at Midpoint of major decline – 50% Retracement
A quick analysis of GTBANK shows that the midpoint between the high and low prices registered this year is ₦25.55. This is the yellow horizontal line seen on the chart which has proven to be a good resistance to the stock since the March decline.
The interpretation of recent price movement is that GTBANK has erased half of the Corona virus-induced declines and is presently looking to see if it can erase even more. A 50% price recovery is a major milestone.
The 50% retracement is more important because it is the third time that the stock is testing this level. A popular technical chart pattern is a triple top pattern which is a very bearish signal. GTBANK is presently looking like a stock that is setting up for a picture-perfect triple top (see the three down-pointing arrows on the chart above).
A triple top pattern is usually seen when a stock registers prices which create three peaks at nearly the same price level. This price level where the peaks occur is known as resistance levels. Another look at the chart above shows a clear triple top formation has developed on GTBANK’s chart.
One more look at the chart will show the price of GTBANK contained within an upper red line (resistance) and a lower green line (support). These lines, red and green, are both slanting upward but the slope of the lower support line is greater than the slope of the higher resistance line.
This pattern, in technical analysis, is known as a wedge. Gordon Scott, a renowned Market Technician, published an article on Investopedia titled Wedge. He does a great job of explaining that wedges are characterized by converging trend lines that span between 10 to 50 trading periods (as seen in the GTBANK stock chart) and they have a good track record for forecasting price reversals.
These three factors could be a source of concern for anyone who is already invested in the stock. Assuming you bought GTBANK at the end of March when it was at the low for speculative reasons, you need to pay attention to what this stock does from this moment.
The Big Picture – the NSE All-Share Index (NSEASI)
You also need to pay attention to what the general stock market, the Nigeria Stock Exchange All Share Index (NSEASI), is presently doing. Why you may ask? It is because very few stocks are able to make moves that contrast with the NSEASI’s moves. If the market is going up, most stocks will be going with it – unless there are fundamental concerns with the company.
Above is the chart of the All Share Index. It shows quite similar price actions with GTBANK. Since the ASI is at a crossroads too, we need to see NSEASI advances supported by broad market strength. If GTB is to have a sustained break above the ₦25.50 price resistance, we need to see All Share Index breadth increase as well.
All Share Index Outlook
If the All Share Index opens this week and does not show good breadth and strength indicators, it may be wise to cover your positions and take some good profit before the market commences another decline. If, however, the market shows signs of strength, the GTBANK stock is in for some good times.
The All Share Index currently has a cautiously bullish outlook. This is because it has been in an uptrend for a couple of weeks but the market breadth (an indicator that shows whether a trend is strong or not) has returned to historical neutral ratios.
This combination, our algorithm tells us, is a sign for caution. When combined with the double top seen on the All Share Index chart, you will understand that the odds favor a down move unless some interesting news filters into the market this week.
If this section has left you confused, relax – I’ve got you covered. You may be wondering, “Which one is market breadth again o!”. Don’t worry, dear reader. Remember you “thanked me” earlier when this article started. If you want to learn more about the market breadth and how to use it, you can download a copy of the current market health dashboard here.
How to play this setup
Connecting all these dots, we paint a “not so rosy” picture of the short to intermediate-term trend of the Nigerian Stock Exchange All Share Index and, ultimately GTBANK stock. This, however, does not make it a certainty that the decline will happen – there are no certainties in the market.
Having put out that disclaimer, let’s go to practical steps on how to play this setup. You need to pay attention to the information provided on the order book for GTBANK. We have identified key price zones that should provide support and resistance to price advances and declines. These prices are:
Between ₦25.55 and ₦26.00 for resistance and
₦23.00 for support
Offers dropping below ₦25.00
Recall that the patterns and other setups point to a decline in the price of GTBANK stocks. There are indicators to watch on the order book of GTBANK for confirmation.
Your attention should be drawn to whether there is a bid or offer imbalance as well as whether trades are being executed above or below ₦25.00. If there is an offer imbalance (more offers than there are bids) and these imbalances are priced below ₦25.00, this indicates that there are sellers at ₦25.00 that are willing to take profit.
If prices fail at ₦25.00, expect support at ₦23.00 and if this fails, then we are likely witnessing the early phases of a tangible decline.
Also, keep an eye on whether most stocks are trading above or below their open prices. You need to answer the question, “are more stocks trading higher or lower?”.
Bids lifting above ₦25.50
Any bids lifting above ₦25.50 followed by an imbalance on the bids (significantly more bids than offers) indicates that the triple top formation will fail, and a breakout is underway. This would see GTBANK trade higher and test the next resistance at ₦31.00 (~22%) and if that is sustained, it could go on to test the high of the year at ₦34.40 (~35%).
If bids are taking out the offers around ₦25.50 a good entry point could be between ₦25.50 and ₦26.00 with stop-loss orders placed between ₦24.90 and ₦24.95. These are price levels just below the low made on Friday.
One caveat though. Any rally that does not take out the ₦26.00 price is a sign of a false breakout and you should adjust your position appropriately.
GTBANK stocks are at a classic decision point where a move, either way, is imminent. It is also set up for optimal risk to reward positions, made possible by the price action narrowing into the convergence point of the rising wedge.
The most obvious patterns point to a decline in the stock price. Indicators that will confirm GTBANK failing at the ₦25.50 resistance level include offers dropping below ₦25.00 with a sustained imbalance of offers.
If the market, however, disregards the bearish setup, you should pay attention to whether there are more bids than offers above ₦25.50 and through ₦26.00 for confirmation of advancing prices.
Hope you get this post early enough to take advantage of the information it provides. If you like this post and would like to share it with your friends, you can hit any of the share buttons below. You may just be helping someone make or save some of their money.
Taiwo Megbope is the Co-founder and Chief Growth Officer at Investor Hangout.
He is tasked with ensuring and managing the growth of the Investor Hangout project. His responsibilities include creating and implementing the project's vision as well as executing growth-generating strategies.
Taiwo is an avid researcher and autodidact. In his spare time, he enjoys spending time with his family and friends.