The Lloyds (LLOY) share price had a mixed July. The stock initially climbed from 46.6p to a monthly high of 48.30p. It then declined to 42.77p. It ended the month at 45.7p as investors reacted to the company’s half-year results.
It has been a good year for Lloyds and other London banks as the UK has moved on from the pandemic. Most FTSE 100 banks have seen their share prices rise by more than 20% this year. The only laggards have been banks with an Asian exposure like Standard Chartered and HSBC.
This growth has been helped by several factors. First, the UK government has continued to support the economy by providing some tax breaks and the farlough program. This has made the country’s labour market to be better than in other countries.
Second, the government provided a stamp duty relief for the housing sector. As a result, demand for mortgages rose while home prices rose to a record high. This was a good thing for companies like Lloyds Bank and NatWest that provide mortgages.
Third, the UK government averted a full-blown crisis by reaching a Brexit deal with the European Union. This was a good thing for banks because previous estimates were for the economy to drop substantially without the deal.
Fourth, the Lloyds share price has risen because of the decision by the Bank of England (BOE) to allow UK banks to give dividends and buyback their shares. Indeed, the bank decided to return its dividends after it reported strong quarterly results last week.
The firm made a pre-tax profit of more than $2.92 billion in the second quarter. The results were better than the median estimate of 1.23 billion pounds. It will also pay a dividend of 0.67 pence per share, bigger than the expected 0.56 pence.
So, what next for Lloyds? The biggest challenge for the firm is the ongoing new wave of Covid in the UK. This wave could lead to more pressures for the UK economy. Also, it will likely struggle since the housing market has almost peaked.
Turning to the daily chart, we see that the LLOY share price rose to a year-to-date high of 50.25p early this year. The stock then retreated by more than 15% and settled to a low of 42.80p. It also made a descending channel and is now slightly below the upper side of this channel. The stock has also declined below the 25-day and 50-day moving averages (MA).
Therefore, there is a possibility that the stock will retest the lower side of the channel at around 43.50 and then break out higher to the YTD high. On the flip side, a move below the support at 42.90 will invalidate this view.