- Summary:
- Lloyds share price dropped sharply today as investors react to the relatively weak earnings by Barclays. What next for the stock?
The Lloyds share price declined for the third straight day as investors reacted to the latest earnings by Barclays. The shares are trading at 38.2p, which is slightly below the psychologically-important resistance at 40p.
What happened: In a statement today, Barclays said that its pre-tax profits declined by 38% to #3.8 billion in 2020. In the fourth quarter, its profit dropped by 68% to £220 million mostly because of higher reserves. The firm set aside £4.8 billion as provisions for bad debt. Most importantly, Barclays said that it will pay 1p per share, which was also below the expected 3p. This shortfall was compensated by another £700 million buyback program. As a result, Barclays share price fell by more than 3%.
Why this matters: The weak results by Barclays are important for Lloyds because of its large consumer and mortgage business in the UK. Unlike Barclays, Lloyds does not have an international investing and trading business. Indeed, the bank’s trading rose by about 45% in the fourth quarter. This helped to offset the credit-related losses. Indeed, the bank’s CEO said:
“2020 demonstrated the value of our diversified banking model, delivering resilient group results even in a difficult macroeconomic period, driven by the performance of our CIB,”
Therefore, Lloyds share price has fallen because investors expect weak results. The firm will publish its quarterly on Wednesday next week.
Lloyds share price technical outlook
Looking at the four-hour chart, we see that Lloyds has struggled to move above the important resistance level of 40p. On Tuesday, the shares formed a gravestone doji or a hanging man pattern followed by two red candles. This is a bearish sign.
Therefore, in my view, there are two likely outcomes for the shares. First, the most likely situation is where the shares drop as bears target the lower support at 31p. Second, there is a possibility that bulls will return and cross above the resistance of 40p.
LLOY shares chart
