At this point, a rally couldn’t come soon enough. The markets have dropped drastically over the past several weeks and they don’t seem to want to stop dropping, but they will. When? Tough call. However, when the market does rally, it may be short lived. If you missed out on entering short opportunities when the sell-off started, you may want to look to rallies for a 2nd chance. One stock worth watching would be MTB (M&T Bank Corp).
M&T Bank Corporation is a bank holding company. Through its subsidiaries, M&T provides individuals, corporations and other businesses, and institutions with commercial and retail banking services, including loans and deposits, trust, mortgage banking, asset management, insurance and other financial services. M&T operates in six segments: Business Banking, Commercial Banking, Commercial Real Estate, Discretionary Portfolio, Residential Mortgage Banking and Retail Banking. M&T Bank has approximately 740 domestic banking offices located throughout New York State, Pennsylvania, Maryland, Delaware, New Jersey, Virginia, West Virginia, and the District of Columbia.
Please take a look at the 1-year chart of MTB (M&T Corp) below with my added notations:
MTB has formed (2) very important levels over the course of the year. The first would be the $90 resistance (d. red) and the other would be the very common level of $85 level (green & red). The $85 level has acted as both support and resistance over the entire year. During the last 7 months, these (2) levels have worked together to create a common Rectangle chart pattern. Like most stocks, MTB broke its key level of $85 and did what one would expect: It went lower with the rest of the market. When the market does finally rally, MTB could make its way back up to the $85 level.
Chart patterns can also provide price targets. Simply take the height of the overall pattern and add or subtract that amount to or from the breakout or breakdown points to get the minimum price objective. For example, since the Rectangle pattern for MTB is $5.00 high ($90 – $85), MTB should fall to a minimum of $80 ($85 breakdown point – $5 pattern height) now that it has broken lower. Chart pattern price targets are certainly not guarantees, but they are often fulfilled.
The Tale of the Tape: After being stuck in a 7-month Rectangle pattern, MTB broke down through its $85 support. When MTB finally moves higher, possibly after hitting $80, the $85 level should act as resistance. From there, MTB should move lower again, thus a trader would might want to enter a short position with a stop above $85. A break back above $85 would negate the forecast for a move lower.
Side note: If MTB were to break back above $85, a long trade could be entered for a move back up to the $90 resistance.
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