Itau Unibanco Holding SA (ADR) (NYSE:ITUB) extended its rally to the third consecutive session to end the day with a gain of 4.73%. The volume surged to 31 million against the daily average of 14 million. This rise can’t be taken as more than a corrective bounce as a huge number of high grade bonds of this bank, just like most other Brazilian banks and companies, are facing the serious possibility of a rating downgrade to junk. If the re-rating really takes place and the investment grade bonds transform into speculative bonds, then that would be a severe blow for the bank.
To ascertain the real technical state of the Itau Unibanco Holding SA (ADR) (NYSE:ITUB) stock, one must check the long term chart which shows the clear rejection from the $26 levels the stock faced twice in the course of just 2 years. The Double Top has been pushing the price down for the last 4 years and a final bottom is yet to be confirmed by the price action. As the chart attached clearly shows that the series of lower highs and lower lows has remained intact as the bulls consistently failed to register any new high or protect any low. This kind of downtrend generally tends to end with a very sharp panic low, which is not visible anywhere on the charts.
The upper boundary of the short term channel shown on the chart may act as the resistance in the next few sessions, which also coincides with the immediate supply area in the band of $13-$14. If the channel is broken on the upside, then using the previous bear rallies as historical instances, we can expect an extension of the rise to $15-$16 levels but in any case, the recent swing low around $10 doesn’t look like a strong long term bottom which can signal the end of the long term bear market.
