Chart of week: Barclays vs Deutsche Bank

After a 38% profit on Barclays, here’s what this star analyst thinks will happen next. He shares his view on Deutsche Bank too.  

Barclays (LSE:BARC) and Deutsche Bank (XETRA:DBK) – have they much in common?

To wrap up my look back at 2019, I have been asked to review one of my standout calls of last year – Barclays. 

Recall, I had been relentlessly bearish on the UK banks for many months – until I spotted a likely reversal of the bear trend that I noted in my article on 9 September.

• Chart of the week: Are Barclays shares about to rocket?

This is part of the evidence I presented then:

Source: interactive investor  Past performance is not a guide to future performance

I noted the likely termination of the five waves down off the March/April 2018 highs and the very large wedge pattern on the weekly chart. A wedge pattern like this is potentially very bullish. I did not have a momentum divergence on the weekly at the recent 135p low set on 25 August, but all of my other ducks were nicely lined up in a row.   

I sensed the selling climax had very likely materialised from the 770p high set in 2007 – a full 12 years previous. If this proves to be correct, I would have nailed the precise end of a massive 12-year bear trend, thereby defying those jeremiahs who claim that ‘no-one can time the market’.

And that indeed was the low and this is what I wrote then:

“For those reasons, I have been covering short positions for major profits. I am also taking small long positions here using the recent low as my fail-safe. If that low holds and the shares can climb back above the 170p area inside the Wedge, the ‘overshoot’ would be genuine – and herald a swift rally up to the 170p area with higher potential.”

And here is the latest action:

Source: interactive investor  Past performance is not a guide to future performance

So, there we are after my highly accurate call. Was it pure luck I managed to reverse my stance from strong bear to bull within days of the major low? You be the judge. Incidentally, taking some profit here may well be a prudent move for a 38% maximum gain in four months.

OK, we now have a new year getting underway - could we produce another rip-roarer as we did last January with my bullish Apple (NASDAQ:AAPL) call? Today, I feature Deutsche Bank.

This major German bank must be the most hated on the board. It has been implicated in several scandals, has been subjected to very harsh treatment by the EU authorities and its recent proposed merger with Commerzbank to reduce overheads was nixed by the EU.  

Not only that, but it has been suffering the same squeeze on profits from the negative interest rate policies (NIRP) in Europe. So, what’s to like with this dire outlook? Has the selling run its course?  Here’s my bullish case.

This is the weekly chart showing the disaster the investment has been:

Source: interactive investor  Past performance is not a guide to future performance

If my wave labels are correct, we are at the start of a major upside correction of the bear trend. And I have a good momentum divergence at the €5.80 June low.  

Here is the close-up:

Source: interactive investor  Past performance is not a guide to future performance

The blue line of resistance is very significant. If the shares can climb above it purposefully to convert it into a line of support, it would confirm my Head & Shoulders pattern and signal my first target around the €9.50-10.00 zone with higher potential thereafter.  

And because there is a huge short interest, any squeeze on them would likely result in a rapid run up to this target. I believe the downside risk is fairly low, although any move below the 6.30 level would likely cancel this outlook.

For more information about Tramline Traders, or to take a three-week free trial, go to  www.tramlinetraders.com. 

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.