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Royal Bank of Scotland Group (NYSE:RBS) gapped higher and broke out after the company reported better than expected earnings results. A reduction in bad debt on its loan books helped the financial giant double its bottom line year over year.
Acquisition
Shares for the Royal Bank of Scotland Group shot up 10% on Friday after reporting stellar earnings. The results were boosted by the fall in bad debt in its loan books as well as a decline in the reserves put aside for legal issues related to misconduct from the financial crisis.
The bank’s expenses also fell slightly, as RBS cut 6,300 jobs in the last year. The bank also sold its remaining stake in Direct Line Insurance Group in the quarter. RBS reported first-quarter profit was $2.02 billion, compared to $662.64 million in the same period a year earlier. The firm had the best quarterly results since 2007.
Momentum for RBS Stock
A buy signal was generated by the MACD (moving average convergence divergence) index. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The MACD is an indicator that pin points changes in momentum.
The MACD index moved from negative territory to positive territory confirming the bullish MACD buy signal.
The relative strength index (RSI), is an oscillator that measures momentum as well as overbought and oversold level. It is printing a reading near 67, which is just below the overbought trigger level of 70. During the last surge in the stock price, the RSI peaked at 81, which give investors an idea of how far this stock can run.
Break Away Gaps for RBS Stock
RBS broke out, gapping above trend line resistance near $11, on strong volume. Friday’s volume was one of the top three heaviest volume days of 2014. A breakaway gap occurs when the price of a stock is breaking out of a consolidation trading range or congestion area. A congestion area is just a price range in which the market has traded for some period. RBS had been trading in a $9.800 – $11 range since late-February.
Volume will generally pick up significantly when a breakaway gap occurs. Most investors did not forecast such strong earnings results. The breakaway gap has caught many investors on the wrong side of the trade, and those investors are now scrambling to cover their short positions.
Support and Resistance for RBS Stock
RBS broke out above horizontal trend line resistance near $110, slicing through both the 50-day and 200-day moving average which were former resistance. Support is seen near former resistance at $10.93
The weekly chart of RBS shows that the stock has broken out above a short consolidation and now is now poise to test the weekly high near 12.50. Weekly support is seen near the 50-week moving average near 10.68.. The MACD is poised to generate a weekly buy signal.
Trading RBS Stock
Investors looking to take advantage of the positive momentum in RBS could purchase the stock near the break out level, at former resistance at $11.
Investors could consider taking profits near $12.50, which coincides with the weekly highs. That would translate into a profit of 14%. A close below the 50-week moving average would prudent place to stop out.
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