- Summary:
- In this Lloyds share price forecast, we explain why the stock could soon drop to 40p before it rises to 50p because of the rising wedge pattern
The Lloyds share price has been in an unstoppable rally as investors cheer the UK recovery and the potential for higher dividends. The fading chances of negative interest rates have brought more interest to the biggest UK bank. The stock has jumped by 25% this year, underperforming only Barclays whose shares have jumped by more than 30%. Other UK banks like HSBC, NatWest, and Standard Chartered have also rallied.
Lloyds vs Natwest, HSBC, and Barclays
What happened: The Lloyds share price declined in 2020 as the company allocated billions of dollars as provisions for bad debt. The company also suspended its dividends in a bid to save cash. This was in line with a directive by the Bank of England (BOE).
This year, however, Lloyds shares have done well for several reasons. First, the mortgage industry has continued to power on this year because of government initiatives and low interest rates. As the biggest mortgage firm in the country, it has benefited from this shift.
Second, as a domestic bank, Lloyds has benefited from the ongoing recovery of the UK economy. Furthermore, the government has been praised for the speed of the vaccination drive. Third, investors hope that some of the last year’s losses will become this year’s profits. That’s because the record provisions were because of accounting standards. As such, it will shift some of them to profits.
What next for Lloyds shares?
In my last article, I asked whether the Lloyds share price had more room to run. Now, looking at the daily chart, we see that the stock has formed what looks like a rising wedge pattern that is shown in black. In technical analysis, this wedge is usually a sign of a reversal.
Therefore, in my view, I suspect that the shares will rise slightly and then have a pullback, with bears targeting the important support at 40.75. This is about 6% below the current level. However, in the longer term, the price will likely retest the important resistance at 50p.
Dow Jones Daily Chart
