Metro Bank share price forecast: finally some price action after months of stalling
07:27, 8 July 2020
Metro Bank continues its struggle to survive a series of negative events that have plunged its share price nearly 50 per cent since the year started. Shares of the London-based financial institution are apparently finding some foothold at the 20 DMA and are possibly heading to an uptrend.
Overall positive market sentiment seems to be fuelling the latest price rally seen for Metro Bank shares, even though the bank still has some major issues to deal with. These include recouping the faith of investors after losing £130m last year and facing significant scrutiny from regulators.
Additionally, the bank’s most recent trading update released in May failed to calm down investors, as the company did not disclose the percentage of its capital reserves for the first quarter of 2020. This led to concerns that the bank may be undercapitalised to withstand the turmoil caused by the coronavirus outbreak.
Metro Bank share price outlook
Metro Bank shares have faced a tremendous amount of downward pressure after certain accounting irregularities came to light. In January 2019, the Financial Conduct Authority (FCA) revealed that the company had failed to adequately disclose its risk-weighted assets, resulting in a potentially overstated capital buffer.
Shares of the high street bank nosedived since then and have lost 95 per cent of their value, as investors dumped the stock in anticipation of the worst.
However, probes from the FCA have not yet come to a conclusion and the bank has continued to operate, even though its shares have not recouped from the scandal.
Meanwhile, the coronavirus outbreak, which affected banks’ long-term outlook amid the economic fallout caused by lockdown measures and higher unemployment, has dealt a major blow to the bank’s finances. Investors are possibly bracing for the worst, especially after the bank failed to disclose its capital ratios.
With all that in mind, one would expect that the relatively low levels at which the bank has traded recently are here to stay, since the pandemic’s ultimate consequences are still uncertain and risks of a second wave are still looming on the horizon.
However, a recent jump in Metro Bank stock is opening the gate for a potential trading opportunity, as the stock seems to be taking a foothold at the 20 DMA and could possibly surge to higher ground if more positive economic news keeps coming in.
If we look at the one-hour chart for the month of June we can see that Metro Bank shares are experiencing a price uptrend that is now heading to a potential overbought situation based on the RSI reading, even though the MACD is not sending a sell signal just yet. Quite the contrary, the oscillator is actually pointing to a positive momentum for the shares, which could be the tell to predict what’s next.
Meanwhile, the intraday chart seems to be sending potentially conflicting signals, possibly since the stock has seen higher volatility in recent sessions after a big leap that pushed the price to £1.33, up from a previous low of £0.70.
Right now, Metro bank shares are trading at £1.125, and in my view there might be some room for another push towards the £1.30 level, especially if the virus situation is contained in the country and the economic outlook continues to improve.
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Metro Bank stock news
Perhaps the most important recent piece of news about Metro Bank has been its latest trading update for the first quarter of 2020, as investors continue to watch out for signs of what may be coming next for the British lender, especially after the pandemic struck the country.
There are a few elements disclosed by the business that may be contributing to a gloomy mid-term MTRO share price outlook, with the most important one being the fact that the management failed to disclose the bank’s capital ratios for the quarter.
This important disclosure would have helped investors in understanding how prepared the bank was – and is – to withstand the current and upcoming economic fallout caused by the virus, as the UK economy is expected to contract by around 14 per cent this year according to the Bank of England while unemployment rate could surge to 9 per cent by year’s end.
Under those gloomy scenarios, a strong capital base is essential for banks, as charge-offs and delinquency rates could go up, affecting the bank’s capacity to generate profits and potentially endanger its financial sustainability.
In this regard, the trading update only said that “Capital and MREL ratios remain in excess of regulatory minima following close control of growth in risk weighted assets (RWAs)”, which was definitely not the degree of specificity that concerned investors wanted to hear from a bank that has already been involved in situations of insufficient or misleading financial reporting.
Metro Bank share price forecast
All things considered, I don’t think there are any significant reasons to change Metro Bank’s long-term bearish outlook. Any long-term Metro Bank share price prediction at this point would be a long stretch, especially considering the uncertainty brought by the coronavirus health emergency.
However, based on the charts and following the recent positive sentiment that has emerged since lockdowns were lifted, it is plausible to think that some of this may spill over Metro Bank shares, which would favour a conservatively bullish Metro Bank share forecast.
Based on the charts, there has been strong support at the 20 DMA line and traders can use this to set a stop-loss at a price level below this trend line, as nothing good will come if the stock breaks out below it.
As for a Metro Bank share price forecast, the one-hour chart points to two resistance levels – £1.20 and £1.33 – with the £1.20 level serving as a next-level support line if the positive momentum manages to push the stock above it, en route to the £1.33 resistance.
Not much can be said as to what could happen next if Metro Bank shares do manage to trade above the £1.33 level, as this has been the most promising price action the stock has seen since the pandemic plunged stock prices in late February.
Don’t forget that with contracts for difference, it does not matter whether your view of the Metro Bank share price forecast is positive or negative. You can always try to profit from any future price fluctuations, regardless of their direction, by taking a long or a short position respectively.
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