HSBC’s Bearish Trend Continues

HSBC’s Bearish Trend Continues
November 30, 2015

 
HSBC Holdings Plc (LON:HSBA, NYSE:HSBC), the world’s 4th largest bank by total assets held, has seen its share’s price drop since the middle of 2013 when it reached post-crisis highs around 760p. From there HSBC fell more than 35% to reach a recent low of 480p and the trend has a good chance to continue.

The London-based global bank has more than 6100 offices worldwide, almost $3 trillion dollars in assets, and dates back to 1865. HSBC is considering moving its Headquarters outside the UK as the local regulatory environment has become very strict since the financial crisis.

The bank operates in four segments, Retail Banking, Private Banking, Commercial Banking, Private Banking and Wealth Management, Global Banking and Markets, covering the whole financial field. The company has vast interests in the Asian market where the economic slowdown and the stock market decline in China create a headwind for financial businesses. With the Hong Kong wealth management unit accounting for 70% of the firm’s Asian market, Chinese developments have a huge effect on the company’s profitability.

The firm is trying hard to cut costs with more than 50,000 layoffs and strategic restructuring of units. As a part of that effort last week HSBC announced the wind-up of its Indian private banking business. The cost cuts helped the company beat analyst estimates in the last quarter but overall the market is not impressed with results as the shares continue to slide.

HSBC 5yr Technical Analysis - 30th Nov 2015

The technical picture looks negative as the stock is seriously lagging both the broader FTSE 100 index and the benchmark for the bank sector. The shares are stuck below the strong resistance level at 540p and the declining 200-day MA. The dominant chart pattern is and in a bearish trend channel that dates back to 2013. The MACD momentum indicator is in neutral territory but is headed for an imminent sell-signal signaling a continuation of the long-term trend. The minimum target of the move is the 480p level with the next possible support around 460p. If the share breaks that level, another sharp move down is in the cards without meaningful technical support nearby.

I recommend buying put options on HSBC as the long-term trend is set to continue. The relative weakness combined with short-term signals provides a good risk/reward ratio for options with an expiration date of January or February. Traders should look for strike prices of 530p-540p.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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