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Comerica, Oh Comerica

03/10/10 01:13:17 PM
by Koos van der Merwe

The banks in the world led us into the present economic mess by forgetting that their institutions should be built on solid concrete foundations. They started changing that concrete to quicksand. Is the quicksand starting to harden?

Security:   CMA
Position:   Sell

Comerica Inc. is a financial services company headquartered in Dallas, TX, strategically aligned into three major business segments: The business bank, the retail bank, and wealth and institutional management. With the changes in the banking structure as put forward by Paul Volcker, investors appear to be buying bank shares in the hope that Congress will stop its politicking and pass some sensible legislation.

Graphic provided by: AdvancedGET.
Figure 1, the weekly chart, however, shows that Comerica the bank went with the norm. The share price started falling on May 27, 2007, and started recovering in March 2009. At present, it is testing the 50% retracement level at 37.77. The relative strength index (RSI) is oversold suggesting a sell signal, and with volume rising as the share price is falling, the weekly chart suggests that the long-term trend is negative.

Graphic provided by: AdvancedGET.
The daily chart, Figure 2, confirms the bearish trend for the company, with the RSI giving a sell signal and the volume rising dramatically as the share price fell on March 8. The target as suggested by the Fibonacci retracement indicator is 24.78, the 50% retracement level.

The question, of course, is with all other banks rising, as investors believe banks are becoming solid institutions once again, why is this bank showing weakness? Looking at the chart, we can see that all the other times the RSI gave a sell signal, the share price went through a consolidation phase before resuming its uptrend. We should therefore assume that the same thing can occur now.

This is a stock to place on your watchlist. As banks restructure and reorganize and when the Volker rules go into effect, if they ever do, then this is a share we can buy.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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