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Last week was certainly a tough one for equities markets across the globe. We saw a sea of red across most symbols on world bourses. It would be logical to conclude that a global equities market shake-up is going to hit banks and other financial stocks the hardest. This week I would like to show you a pattern we came across on Macquarie Bank (MBL) at the most recent Trading Tactics Seminar in Canberra . MBL is certainly a big player in investment banking here in Australia and internationally. It has been a darling of the bourse, with a rise from its first opening price of a whopping $6.95!
Chart 1 is the most up-to-date market action on MBL available and shows that the recent slide on equities has hit this stock very hard indeed. The pattern we are highlighting here is the double top that occurred on June 20 and July 17 at $92.70 and $92.88 respectively.
Chart 1 – MBL Daily Bar Chart Double Top
click chart for more detail
This double top – known as a bear market double top – is the best type for trading, though you cannot say conclusively that MBL is in a bear market just yet. Let me explain.
On Chart 1 I have marked two lows as 1 and 2. The first low preceded the first of the double tops; the second low preceded the second. The term ‘bear market double top’ applies when the second low is lower than the first. We have a double top pattern with the market making lower lows.
In this case the low between the two tops came in on July 2 at $83.60. Using the first top and this low to get a reference range we get $92.70 - $83.60 = $9.10. Using David Bowden’s 200% rule for double tops as they relate to the price of the second high we determine a price target at a low of $92.88 – (2 x $9.10) = $74.68.
Here is a little bonus for our readers (as I’m aware that some are not Safety in the Market clients). The time between the all-time high which occurred on May 17 ($98.64) and the second of the tops is approximately 60 days. If we run out 90 days from the top we get to mid-August. So with a price target in mind and a date to watch from the all-time top, you can stalk this as a potential Gann ‘Time and Price’ set-up.
Notwithstanding the above, you need to trade the market based on what it is presently doing and not on what you think it will probably do. I have been looking for a dip to occur in the market around now, followed by a last run up into the real top, arriving – as I indicated last year – sometime in September. This would certainly support the view that MBL has quite an influence on the SPI200.
Until next time…
Noel Campbell
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