In the next few weeks Italian financials will be under stress in our opinion. Uncertainty is likely to keep ruling the markets for political reasons and macroeconomic fundamentals are still concerning as shown by recent releases of February PMI index (45.8, -2 month on month) or youth unemployment (an impressive 38.7%, where Greece was two years ago). Moreover we do not see a quick and satisfactory resolution for the political crisis.
We want to play this situation by shorting Banca Mediolanum (MED:IM) which seemed to us the best candidate for several reasons:
– it comes from a strong uptrend move, more than doubling since Draghi’s “whatever it takes” statement (July, 26th), so there is a lot of room for a retracement considering also that Mediolanum is close to its four years high
– on the political stalemate, this week, it broke below the 50-days moving average even if it outperformed other Italian financials
– Mediolanum has been less volatile compared to its peers so it is less risky in case of a rebound of the market. Furthermore if the rebound should happen it would be less strong than that of its peers because the stock has not lost too much recently so there is less to recover
We believe that a good profit target for a one-week time horizon is around the 3.75 – 3.80 level while the stop loss should be set at 4.35-4.40.