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Metro Bank ready for a reversal

Metro Bank is still struggling following the PRA investigation into their high-risk commercial property and buy-to-let loan miscalculations in 2019, with the share price having fallen 95% since 2019. However, on the 4th of November takeover plans (Carlyle taking over Metro) were announced which resulted in a spike in the price up to 147.7 but on the 17th of November the share price of Metro took another fall as the takeover talks were brought to an end without agreement. Although, there is speculation that the offer bid was not high enough for Metro to consider which could lead to a higher offer in the future and again another spike in share price.

After the glimmer of hope was removed on the 17th, Metro’s share price has continued to fall and has already reached a point of prior resistance at 97.3. However, the price of Metro is unlikely to break-through this price based on the MACD indicator, RSI, as well as the candlesticks (shown in Figure 2).

From a three-month perspective (shown on Figure 1) there is likely to be a bounce-off resistance rather than a break-through. This is because there has been a crossover between the signal line and the MACD on the 19th of November, which is a bullish signal indicator and suggests that the price of Metro is likely to experience upward momentum. This reversal is also confirmed further in Figure 2.

As identified in Figure 2, using candlesticks make it possible to identify two indicators in the last three candles. One of which is an inverted hammer which can be taken as a trend-reversal signal which is confirmed by the downtrend experienced since the 18th of November. The inverted hammer appears on the chart when there is pressure from buyers to push an asset’s price up, signalling a potential bullish reversal.

Alongside this, a bullish harami can be identified in the last two candles which is another signal of a reversal.

The latest candle shown in Figure 2 is also a doji candlestick which has a narrow range and opens above the previous day’s close, indicating that the bearish trend may be coming to an end, and hence a bullish trend is likely to start.

This is further confirmed by the RSI which provides an indication that the market was oversold. This means that the downward momentum has bottomed, this has already been confirmed as the RSI has crossed back over the 30 level and has already reached 44.86.

To conclude, the MACD, RSI and candlesticks are implying that Metro's share price should be experiencing a reversal now, meaning that the bearish trend has come to an end and that a bullish trend is about to begin.

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