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Is 50p a barrier for the Lloyds share price?

A brochure showing some of Lloyds Banking Group's major brands
Image: Lloyds Banking Group

Shares in Lloyds (LSE: LLOY) hovered around the 50p level again yesterday, close to their year high. But the Lloyds share price broke the 50p barrier five months ago in June, and has moved up and down since then without decisively driving through that price on a sustained basis. Could it be that 50p is a price barrier for the shares?

What’s a share price barrier?

The idea of a share price barrier is that there are certain levels through which a particular share price struggles to move. That can be on the way up, because it’s hard to find buyers above a certain price level. But it can also act as a floor when a share price moves down. For example, when a share price reaches a certain point where it’s perceived as cheap, it gets ‘support’. In other words, buyers come out of the woodwork to scoop it up, which stops it falling below that point for long.

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A barrier isn’t an actual limit, it’s essentially just a market trend. Some analysts use charts and other technical methods to try and identify such inflection points. But sometimes it can be fairly clear to any observer that a certain share repeatedly gets to or around a particular price but never stays on the other side of it for long. That can change once circumstances do, whether in the company’s business performance or due to market momentum more generally.

50p may be a Lloyds share price barrier

On several occasions over the past half year or so, the Lloyds share price has headed up towards 50p and sometimes reached it but not gone far above it. On that basis, I reckon that for now, 50p does seem like a barrier for the bank’s shares.

But it’s worth recalling that, on a one-year timeframe, Lloyds is still up 40%. Even if 50p is its top level for now, that doesn’t mean it will continue being so. Share price barriers can collapse suddenly.

My take on the Lloyds share price

There are risks for the Lloyds share price. For example, an economic downturn could lead to increased borrower defaults and lower profits. A tightening labour market could push up staff costs. Such risks might help explain why the bank’s shares look stuck in something of a small rut at the moment. But the momentum across the past year as a whole has been upwards.

The company is the UK’s largest mortgage lender and its profits of £5.9bn in the first three quarters of this year underline the business’s size and strength. Its restored dividend could also encourage more positive sentiment on the stock. I reckon the Lloyds share price can head significantly above 50p at some stage and so I continue to hold it in my portfolio for its growth potential.

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Christopher Ruane owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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