Technicals | Sep 01 2011
29/8:
LAYMANS:
The ideal scenario was for the final leg south to kick into gear and break the $22.50 area once and for all. With this feat achieved we’re in a position to see a longer term trend to the upside offering plenty of upside potential over the rest of the year and into early next. It certainly kicked off on the right track with buyers almost falling over themselves to take positions around the $20.00 – $21.00 region. This was beginning to show itself on the run up to the 9th of August low with volume starting to expand. This can only mean that there were plenty of willing buyers around those lower levels. The strong reversal bar on the aforementioned date was a very strong signal that the pull-back had run its course. Also notice how volume remained reasonably high during the subsequent rise yet has started to taper off as some profit taking kicked in. This is very typical at this stage of the trend and can only be viewed in a positive light. The ideal situation over the short term is to see one final probe lower into the target area though I’m not convinced it’s going to come to fruition. If the recent high at $23.85 is overcome with ease over the coming days then the next significant move north is already underway. Not ideal from a pattern perspective but a realistic possibility if the broader markets can continue to show resilience. Either way, NAB is looking the best it’s been for some time.
TECHNICAL:
The lacklustre price action since May 2010 was making for frustrating trading conditions so the comprehensive break through the zone of support is actually a positive attribute in regard to the bigger picture. More importantly, the subsequent impulsive leg higher clearly shows intent which of course is exactly what we want to see. With symmetry now intact it seems likely that the larger degree wave-(B) is firmly in position with the impulsive leg from that point in time completing minor degree wave-i. As can be seen the typical 50.0% – 61.8% retracement level hasn’t been tagged as yet so in a perfect world one final decline will take price into the target area though it’s by no means a requirement. When a powerful trend is underway it’s often the case that a shallower counter trend move takes shape and that’s certainly a possibility in this instance. A comprehensive break above the high of wave-i would mean wave-ii hasn’t quite fulfilled its pattern obligations but would augur well over the coming weeks. Bigger picture NAB isn’t looking as strong as CBA which is something we often mention though it remains a fact that can’t be denied. With a clear 3-leg move up to the October 2009 high it means we can only be in the midst of a much larger corrective pattern though of course if wave-(C) is underway significantly higher levels are going to be tagged over the medium term. So despite not being the greatest stock in terms of relative strength there is no reason to be dismissing the company with a decent trend either already underway or will be shortly.
Trading Strategy
29/8:
If the more typical pattern is to be seen then look for signs of strength once the typical retracement zone has been tagged. This would offer the best risk/reward trade though as mentioned above it’s by no means set in stone that the final decline is going to be seen. More aggressive traders could buy following a penetration above the high of wave-i with the initial stop just beneath the prior pivot low which at this stage is $22.12 although this could change over the coming sessions. Not our favourite stock within the Sector for sure though if our labelling is correct initiating positions in this general region could be very profitable over the medium term.
The views above are the author's, not FNArena's.
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