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Why We're Trading Deutsche Bank (DB) This Week

Deutsche Bank (DB) is on pace to take out its 80-week moving average

Dec 21, 2016 at 10:00 AM
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The German lender Deutsche Bank AG (NYSE:DB) has been subject, in 2016, to a series of "market tantrums" centered around over-hyped fears -- from the crash in oil prices during the first quarter, to the mid-2016 "Brexit" shocker, to the unexpected U.S. election outcome in early November. And in the midst of these macro-level frights, DB itself was the subject of some serious, 2008-style existential concerns stemming from a Justice Department probe (a settlement to the tune of $37 million was announced on Friday).

And through all of this tumult -- which enveloped nearly the entirety of 2016 to date -- DB has managed to advance more than 50% from its late-September low. The stock is now trading above several long-term moving averages, including the 40-week and 320-day. We very much like that take-out of the 320-day, and of particular significance is the rise above the 40-week, which converged so powerfully with DB's 80-week and 160-week moving averages back in the first quarter of 2014 (as seen on the accompanying chart).

It seems likely, in the immediate aftermath of December options expiration, that DB's rally has been (at least in part) unwind-based. Put open interest is double that of calls, reflecting a clear degree of skepticism on the part of investors; however, implied volatility now stands at roughly half the enormous level that accompanied DB's September price lows. Another powerful indicator of the pessimism surrounding DB is the fact that not a single analyst has a "buy" rating on the stock, and reports that the five most recent analyst ratings changes have been downgrades.

With DB having convincingly cleared its 40-week moving average, the expectation of an ensuing take-out of the 80-week, and a rally that will approach the 160-week, is implicit to the ultimate success of our recommended call option. And the "nowhere to go but up" sentiment backdrop helps assure price support on pullbacks as sideline money looks to establish new positions below peak levels.

DB weekly 1216 lg

Subscribers to Schaeffer's Weekend Player service received this DB commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters -- straight from Bernie's trading desk. Learn more about why Weekend Player is one of our most popular options trading services.

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