On a day that saw the Fed, FDIC and other major financial regulatory agencies approve the Volcker Rule, a grouping of laws banning all sorts of proprietary trading at the nations largest banks, it is fairly fascinating to see the anti-climatic behavior of the stocks of many of those affected.
As an active market participant regularly interacting with large U.S. banks, it has been obvious for some time that those institutions expecting to be affected by the eventual regulations have been working aggressively to align their operations, and business plans with the new rules for the last few quarters, if not the last couple years since the introduction of the potential rules.
As investors get their arms around which banks will be most adversely affected, GS most certainly comes to the top of the list, as firm that has derived a good bit of their profits from “trading” in years past, and widely perceived as the savviest bank on the planet when it comes to investing their firm’s capital. I guess the flip side of that observation, if there was ever an organization to figure out how to not only exist in the new world order, but to prosper it would also be GS.
The one year chart below shows how most of this years performance (up 33%) came in Q1, and the stock has spent the better part of the balance trading btwn a $10 range of $160 to $170. Just this morning the stock mounted what appeared to be the most aggressive break-out of the $170 level, only to fall back after the early morning surge.
On a longer term basis, the 6 year chart below shows what should be the next target for those playing for the breakout to the 2009 highs, just above $190, or about 13% higher (green line below). For those raging bank bulls who think that the Volcker Rule will have little to no affect on bank earnings, and the banks will find ways to get back to their risk taking ways, and thus see healthy earnings growth, the all time highs at about $250 back in 2007 seems like a nice round(ish) number (yellow line)!
Aside from my fundamental views on GS or the banks, the one year chart looks poised for an epic breakout with a minimum near term target of $180. We have expressed this view last month via XLF (Adult Swim Trade – $XLF: Bank Deposit), but I may soon look at ways to play for a new year breakout in GS. Stay tuned.