Bet on the EU’s Emotions With the National Bank of Greece

by Jim Woods | November 16, 2012 6:30 am

If asked what the single biggest factor driving the equity markets has been this year, I doubt that any learned observer would come to any conclusion other than the fiscal woes in Europe.

Indeed, most of the trading headlines this year have been dominated by the various machinations in the EU, including austerity measures, parliamentary votes, the role of Germany in the process and, of course, the alphabet soup of the European Stability Mechanism (ESM), the European Central Bank (ECB) and the latter’s decision to initiate Outright Monetary Transaction (OMT) to prop up the sovereign debt of EU member nations.

Now, at the epicenter of Europe’s fiscal earthquake is, ironically, the country that birthed democracy: Greece.

I say ironically, because Greece was once the center of global trade and now it’s the center of global economic worry. You see, the whole fiscal mess in the EU really ramped up in May, as the failure of the Greek electorate to form a new coalition government fueled speculation that Greece would have to leave the EU.

A subsequent election in mid-June was successful in forming such a coalition government, giving us the first sign that an EU bailout deal was both possible likely.

As you might expect, there’s been some incredible volatility in European equity markets this year, as traders and investors have been forced to react swiftly to the scores of positive and negative headlines regarding Greece, the EU bailout plan and measures taken to avert a Eurozone crisis.

That volatility can be seen in a stock I use to track the emotions of the EU’s fiscal follies: National Bank of Greece (NYSE:NBG[1]).

In the past year, on-again, off-again bailout negotiations, conflicting votes by Greek citizens on a government and on austerity measures and … well … the general sense of uncertainty over fate of the region’s currency and political stability have turned a normally sedate financial stock into a cardiac nightmare for traders and investors alike.

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Over the past five years, there’s been no doubt about the negative fate of NBG. The shares have collapsed some 97% over that time period. Still, the past year of trade has been the source of some gut-wrenching volatility.

The 52-week price chart of NBG clearly shows that it’s the kind of stock where emotion plays a huge role in the how it trades.

Yet with so much volatility — as the chart here clearly shows — a look at some of the biggest one-day price swings in this stock over the past 52 weeks is perhaps even more revealing.

The price table here shows the ten biggest one-day declines and ten biggest one-day gains — a clear representation of just what kind of price swings this stock has experienced.

The numbers here don’t lie. In fact, they offer a very revealing look at just how volatile — and just how much emotion — NBG shares have undergone this year. To get a real sense of the magnitude of this stock’s volatility, think about a banking stock here in the U.S. that’s down nearly 24% one day and that went more than 30% one day just a few months before?

Enough said.

Interestingly, for intrepid traders (not investors) who suspect that the latest sell-off in NBG below both the 50- and 200-day moving averages is a temporary trend, a move into the über-volatile entity might just pay off handsomely. At the current share price of $1.90, the stock remains well above its 52-week low of $1.17, so there is precedent for the stock to continue falling from here.

However, if or when the EU bailout situation is looked upon as largely resolved, shares could easily find their way back up over $3 — and possibly even up around their 52-week high over $4. This prospect of a 100% gain in is enough to tempt any trader to take a trip to Greece — as long as you can stomach the volatility.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

  1. NBG:

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