The rally that helped Israeli bank stocks make the best start to a year since 2009 relative to global peers is in danger of fizzling out.
While most investors predict the Tel Aviv Banking Index will continue to rise on stable earnings and attractive valuations, technical analysts say its trajectory shows a bearish “head-and-shoulders” formation. Investors should be on alert, even as the price pattern has yet to send a definitive sell signal, according to Andy Dodd, a London-based technical analyst and sales trader with Louis Capital Markets UK LLP.
“While the upward trend remains intact, it’s starting to look quite stretched,” Dodd said by e-mail on Thursday. “We would need the index to fall around 2 percent to complete the head-and-shoulders pattern. Should that happen, then you would expect the market to continue going lower.”
Sentiment may turn against banks with the appointment of Kulanu party politician Moshe Kahlon as finance minister. The leader of the second-biggest faction in Benjamin Netanyahu’s ruling coalition has vowed to change banking-industry rules to foster competition and reduce costs for consumers.
The gauge of lenders has gained 8.2 percent this year as of 10:28 a.m. in Tel Aviv, compared with a 5.2 percent advance for the MSCI All-Country Financials Index.
The five-member gauge, which includes Bank Hapoalim Ltd. and Bank Leumi Le-Israel Ltd., must close below 1,322.4 to confirm the head-and-shoulders pattern, according to Mark Cudmore, a London-based Bloomberg strategist. Once that level is breached, the index could fall to the next support level, about 1,255, he said by e-mail on May 12.
A bearish head-and-shoulders pattern occurs when a price forms three consecutive peaks, the middle being the tallest. The price must cross below a line connecting the base of the three peaks, called the neckline, to signal further weakness.
For now, investors including IBI Mutual Funds, which manages about $3.9 billion, and Excellence Nessuah Provident Funds Ltd., which oversees about $5.8 billion, remain bullish on bank stocks.
“Prices are very OK at these levels,” Idan Azoulay, chief investment manager at Tel Aviv-based Epsilon Investment House Ltd., who manages about $2.4 billion, said by phone on May 12. He increased his stakes in banks last month. “Even if Kahlon will implement reforms, this will just make the banks more efficient and that is good for the shares.”
Still, the appointment of the new finance minister, who was sworn in last week, has some investors nervous. Eldad Tamir chief executive officer of Tel Aviv-based Tamir Fishman Group, a financial services company with $5 billion in assets under management, said his firm is reducing exposure to banks “significantly” because of regulatory uncertainty.
“Since we saw the results of the elections, we realized we have to lower exposure to banks,” he said by phone on May 14.