The Fed’s interest rate decision is behind us now and a “no movement on the rate” has been confirmed. We thought it would be interesting to take a look at one of the biggest banks in the world that is definitely influenced by central banks’ monetary policies: Banco Santander, S.A. (NYSE: SAN).
With almost two hundred thousand employees and over one hundred million customers, Banco Santander (SAN) is a global banking giant. They are trading at around $5/share now but has traded above the $20/share in 2008 when the financial crisis in the United States started.
This is quite the decline, but when looking at the bigger picture and charts – one may see that the decline is not impulsive, but corrective. More importantly, it looks like a falling wedge, which as we know, is a bullish pattern.
The problem with this wedge is that it is forming on such a big time frame, and is therefore very difficult to predict the moment of completion in order to trade a call option. The key to figuring out when to action this may be to consider the Federal Reserve of the United States.
So far the Fed has signaled an increase in the fund rate to come within this year. It was talking about it for quite some time and trying to prepare markets for the move, therefore it is still highly likely or the Fed will lose credibility.
The one sector that benefits the most when interest rates are rising is the banking sector. The press conference that followed the Fed’s interest rate decision last week was dominated by dovish comments. In the days that followed, two Fed members actually spoke in a hawkish tone regarding rates, and all eyes are now on the GDP release on Friday to see if the three-point growth on the quarter is confirmed. If yes, this will bring more evidence to the Fed and a rate hike may come sooner rather than later.
As a consequence, the striking price for the call option I want to trade is heavily dependent on the Fed as the falling wedge is coming on bigger time frames, and we need a reason for the wedge to break higher. That reason should be a hint of a rate hike from the Fed.
The next step would be to trade the break of the 2-4 trend line and that break is to come at the $10/share level.
Therefore, I am favoring call options on the SAN share price when the Fed raises the rates. I would buy this with a one-month expiration date, as well as another call option from $10/share as that means the market broke the falling wedge and more bulls will join the party. One month’s expiration date for the second call option should also work well.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
