eyeQ: a bearish signal on Barclays Bank shares
Experts at eyeQ have used AI and their own smart machine to analyse macro conditions and generate actionable trading signals. Here’s what it makes of this popular high street bank.
5th July 2024 10:37
by Huw Roberts from eyeQ
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
Barclays
Trading signal: long-term strategic model
Model value: 190.69p
Fair Value Gap: +15.0% premium to model value
Model relevance: 77%
Data correct as at 5 July 2024. Please click glossary for explanation of terms.
With a huge majority secured, all eyes are now focused on what the new Labour government does next. Will there be a big banner policy announcement akin to the Bank of England being made independent in 1997?
One potential policy shift from Labour could see an adjustment in the Bank Rate used by the Bank of England to pay commercial banks. It’s a complicated topic, but the short version is banks have recently enjoyed large gains from the reserves they have parked at the Bank of England. Reducing that interest rate would benefit the government’s budget position but hurt bank’s revenues.
We flag this now because eyeQ’s smart machine has just fired a new bearish signal on Barclays (LSE:BARC).
The stock now sits 15% about our model value. This gap has arisen because while Barclays’ share price has risen, macro conditions have been deteriorating. Our target price (where the stock should trade given the macro environment) has fallen 12.3% in the last month.
To be fair, model value is bouncing back a bit this week. This, plus uncertainty around the new government’s policy stance, may mean this is not an opportunity for anyone with low-risk tolerance. Wait and see might be the more prudent approach.
But even if you’re not keen on a potential tactical trade, the conclusion is this is a stock where the risk-reward is skewed. From a macro perspective, there’s a lot of good news in the price already. We would expect it to lag any broad UK equity rally; and be a stock that is most at risk in any correction.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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