Israel Corp. (ILCO) is poised to start beating Israel Chemicals Ltd. (ICL) after lagging behind its unit this year as the ratio between the two stocks reached a technical barrier, according to Bank Leumi Le-Israel Ltd.
Israel Chemicals, which extracts minerals from the Dead Sea to make fertilizers, gained 7.4 percent this year, as Israel Corp., which has a 52 percent stake in the chemicals company, rose 1.8 percent. A ratio measuring the stocks’ trading patterns has reached its lower Bollinger band, indicating that Israel Corp.’s gains will start to exceed those of its unit, said Daniel Rapoport, the head of equities and derivatives at Bank Leumi.
“Whenever such a wide discrepancy like this occurs it signals an opportunity,” Rapoport said by phone from Tel Aviv yesterday. Investors should buy shares of Israel Corp. and sell Israel Chemical’s stock, he said.
The ratio between the two stocks fell to the lower Bollinger band of 56.4 percent yesterday, according to Leumi. After the spread dropped below that level on Feb. 29, Israel Corp. climbed 10 percent in the following month, while Israel Chemicals advanced 5 percent, data compiled by Bloomberg show.
Bollinger bands are designed to alert investors when a security rises too high or falls too low by comparing its price to average trading levels.
In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.
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