Trading Credit Suisse's Technical Levels As Markets Sweat The Bank's Future

Zinger Key Points
  • There is no doubt the long-term trend in the issue is not your friend.
  • If investors are inclined to view the bank's recent actions as signs of a turnaround, Monday’s low is a possible exit point.
Trading Credit Suisse's Technical Levels As Markets Sweat The Bank's Future

It is hard to imagine that Monday's news cycle on Credit Suisse Group AG CS would have a positive impact on the issue and perhaps on global markets as well. But it has.

What are the possible implications for the beleaguered stock from a technical perspective?

Long-Term Loser: What so many investors do not comprehend is how some have issues have traded in the past. Many of these stocks peaked ahead of the financial crisis in 2008, and Credit Suisse was one of them.

In May 2007, the issue peaked at $79.26 but weakened at the end of that year and closed at $60.07. The issue did put in a tradeable bottom in March 2020 at $6.47 and more than doubled when it rallied in February 2021 at $14.95.

At Monday’s low ($3.70), Credit Suisse was trading 43% below its COVID-19 low.

So This Is Good News? Over the weekend, it was reported the Swiss bank’s top brass was in talks with its major investors to reassure them amid rising concerns over the lender's liquidity.

The move was instigated by the widening of spreads of the bank’s credit default swaps, which are used to protect investors against financial risks such as default. As a result, the company was in talks for much-needed capital to calm investors.

Monday’s Price Action: Following a flat open Monday, the issue made a new low for the move, falling to $3.70, but rebounded to close higher on the day by 9 cents, or 2.3%, at $4.01. The move took place on more than double its 50-day moving average for volume.

Rising Tide Lifts All Ships Tuesday: A strong move to the upside in the global markets Tuesday — instigated by a smaller-than-expected rate hike by the Federal Reserve of Australia — lifted Credit Suisse higher. 

After a modestly higher open in the U.S. markets, the issue dipped a penny to $4.15 and resumed its move higher. The stock ultimately gained 12.22% Tuesday, closing at $4.50. 

Once again, the move is taking place on much higher than average volume than usual.

Credit Suisse Moving Forward: There is no doubt the long-term trend in the issue is not your friend.

If investors are inclined to view the bank's recent actions as signs of a turnaround, then it may be prudent to use Monday’s low as a possible exit point.

Of course, shorting the issue at its current price presents an unfavorable risk-reward, as the maximum profit is limited to the shorting price and the risk is unlimited to the upside.

Photo via Shutterstock.

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