Sunday, September 11, 2011

Extreme oversold conditions nearly reached by European banks

Fig. Extremes for BNP Paribas

Fig. Extremes for Deutsche Bank

Fig. Extremes for Societe Generale

The most stable condition indicating extreme oversold level for the three banks mentioned before is price deviation from long moving average. Based on the historic data, extreme oversold level is reached at -0.3 for BNP Paribas, -0.4 for Deutsche Bank, and -0.5 for Societe Generale.

The second most indicative signal is the price change over the previous year. The threshold levels are -0.5 for BNP, -0.7 for DB and -1.0 for SG (weak signal).

The current levels of the indicators are:

        BNP    DB     SG
 DEV MA -0.383 -0.410 -0.544
 REL SD  0.242  0.241  0.364
 YOY %  -0.618 -0.627 -0.931

It seems that based on the deviation from long MA, all three banks have already reached the extreme oversold level, and their annual price change is close to confirming that.

It doesn't mean, the prices cannot go even lower, especially in a shock situation. The extreme oversold conditions have been calculated using daily data for the last 18-24 years (depending on availability). The present may be totally different from the past, though... (so at least in the case of the French banks it may be worth waiting till Moody's downgrades their debt this week)

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