Will Barclays Break Higher?

With shares of Barclays (NYSE:BCS) trading around $17, is BCS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Barclays is a global financial services provider engaged in retail banking, credit cards, wholesale banking, investment banking, wealth management and investment management services. The company operates in eight segments: U.K. Retail and Business Banking, Europe Retail and Business Banking, Africa Retail and Business Banking, Barclaycard, Barclays Investment Bank, Barclays Corporate Banking, Wealth and Investment Management, and Head Office and Other Operations. Banking and capital markets services are just about a requirement for most consumers and companies around the world. Look for Barclays to continue to provide these valuable financial services and see rising profits coming from expanding economies.

T = Technicals on the Stock Chart are Mixed

Barclays stock has moved much higher after establishing lows during the 2008 Financial Crisis. The stock is now trading at critical prive levels so it may need time before it really gets going. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Barclays is trading slightly below its key averages which signal neutral to bearish price action in the near-term.

BCS

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Barclays options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Barclays Options

34.67%

90%

88%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Steep

Average

August Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Barclays’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Barclays look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

N/A

-50.10%

N/A

-62.60%

Revenue Growth (Y-O-Y)

N/A

N/A

N/A

N/A

Earnings Reaction

-1.31%

9.13%

-0.74%

8.98%

Barclays has seen decreasing earnings over most of the last four quarters. From these numbers, the markets seem to have had mixed feelings about Barclays’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Barclays stock done relative to its peers, Deutsche Bank (NYSE:DB), HSBC (NYSE:HBC), UBS (NYSE:UBS), and sector?

Barclays

Deutsche Bank

HSBC

UBS

Sector

Year-to-Date Return

-0.58%

-7.28%

-1.60%

7.88%

4.55%

In a weak sector, Barclays has been an average relative performer, year-to-date.

Conclusion

Barclays is a financial services company that engages with consumers and companies operating in various industries worldwide. The stock has witnessed a reasonable bounce from lows but is now trading at critical price levels that may give it some trouble. Over the last four quarters, investors in the company have had mixed feelings as earnings have been decreasing. Relative to its weak peers and sector, Barclays has been an average year-to-date performer. WAIT AND SEE what Barclays does in coming quarters.

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