PacWest Bancorp operates as the holding company for Pacific Western Bank that provides commercial banking products and services to individuals, professionals, and small to mid-sized businesses in the United States. It accepts demand, money market, and time deposits. The company’s real estate loans include construction loans, miniperm loans, and equity lines of credits; commercial loans comprise lines of credit and commercial term loans; SBA loans; and consumer loans, such as personal loans, auto loans, boat loans, home improvement loans, revolving lines of credit, and other loans. It also provides technology, manufacturing, software, transportation, and mining equipment leasing services; international banking, multi-state deposit, and investment services; telephone customer and online banking services; foreign exchange services; and remote deposit capture services, as well as issues ATM and debit cards.
Take a look at the 1-year chart of PacWest (Nasdaq: PACW) below with the added notations:
There is a lot going on with the chart of PACW, so let’s start with the channel. The stock has formed a relatively clear down-channel pattern over the last 2 months. When it comes to channels, remember that any (3) points can start the channel, but a 4th point or more confirms it. You can see that PACW has several points of channel resistance and support (blue).
Next, PACW has held a very important level of support at around $38 (green) since November. The stock’s down-channel is forcing the stock back to $38 again, and that might provide another bounce higher. However, the stock’s formation of a head and shoulders (H&S) pattern (gray) could be setting the stock up for a breakdown.
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The Tale of the Tape: PACW has a key level of support at $38. A trader could enter a long position at $38 with a stop placed under the level. A long trade could also be made if the stock breaks the channel resistance. However, if the stock were to break below the $38 support, which would confirm the H&S pattern, a short position would be recommended instead.
Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.
No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!
Christian Tharp, CMT
Follow me on Twitter: @cmtstockcoach