In yesterday’s much-delayed Autumn Budget, the embattled Chancellor omitted a raid on UK banks (via a levy). Investors immediately cheered.
Share prices of UK banks started rising shortly after 12pm. This upward momentum carried on to the morning of Thursday.
If we plot the charts of the big three domestic bank stocks, their well-defined uptrends are pretty much affirmed again.
Barclays (BARC) re-gained 420p; Lloyds (LLOY) rebounded to assault the key £1 level again, while NatWest (NWG) crossed above £6. All three maintained their prices above the long-term 150-day moving average.
Prudential (PRU), the international insurer, also joined in the bounce. Prices affirmed 1,000p as support.
Earlier in the year, I have flagged UK financials as a sector to overweight due to their sturdy balance sheets and great-looking charts. [1]
This bullish outlook is maintained, at least over the new few weeks. The speediness of the rebound this week is a testament to the large buying interest in the background.
What could dent the positive prospect here?
A danger for investors is that these bank shares start to climb rapidly, out of the blue, into decades’ highs.
For example, Barclays is already up by more than 200 percent since 2023 (125p to 420p). If prices accelerates quickly into 500-600p, that would take the bull run in excess of 300 percent.
When this upward acceleration happens, be prepared to sell some positions to book profits. The same tactic is recommended for NatWest and Lloyds.
Why, you may wonder, adopt this tactic? The reason is simple. A parabolic rally after a multi-year steady advance is often a ‘trend ending’ pattern.
Investors become too optimistic; while rapidly appreciating share prices fulfilled their medium-term upside potential.
And who knows, next year the Chancellor may be looking to impose a levy on UK banks!
In sum, hold for now, and watch to let some go when prices accelerate northwards. Then wait for opportunities to re-appear again.
