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2009 has been a great year for trading. After strong falls in the first 2 months of the year, the market made a major bear market low in early March and has been up strongly since that time. If you were looking for a stock to trade, one simple rule is to look for ones that make their lows earlier than the general market does.
Let’s take a look at the Finance Sector. You can see from Chart 1 below where the 4 major banks made their lows.
Chart 1 – Lows in the Major Banks
click chart to enlarge
CBA and WBC were the first to make their bear market lows, both on 23 January 2009. This was about 6 weeks before the SPI made its low on 10 March. Next came ANZ on 12 February, and finally NAB, the only one of the major banks not to low before the index. If you look closely at the charts above, all the banks made lows in January, but ANZ went slightly lower in early February and NAB made a lower low in March.
If you had picked these stocks to trade in the subsequent bull market, how would you have fared?
Chart 2 – How the Banks Moved in 2009
click chart to enlarge
As you can see in Chart 2, all of the banks have made excellent runs sine the lows early in the year. ANZ climbed from a low of 11.83 to a high of 25.25 in October, a rise of 113%. CBA made a low of 24.03 and a high of 56.24, making its advance 134%. NAB moved from 15.85 to 32.37, a gain of 104%. WBC’s low was 14.40 and its high 27.57, and its advance was 91%.
Chart 3 – Retracement Levels
click chart to enlarge
An alternative way to compare these advances is to look at the percentage retracement of the 2007 to 2009 bear market that has been achieved in 2009. The calculations after Chart 2 are effectively looking at Lows Resistance Cards; in Chart 3 we are using Range Resistance Cards.
Using both methods of calculation, CBA has shown the strongest result in 2009. In fact, it has rallied almost 87.5% of the bear market losses. If you look carefully it has also held up better than the other banks since the current tops in October 2009. This was the stock that bottomed first.
WBC bottomed at the same time as CBA, but its results varied according to how you rate them. It rallied 75% of the bear market range, the second best result, but on a percentage from the low it actually showed the lowest return. This is due to the fact that its losses in the bear market were far less than the other banks. It fell 50% from the 2007 highs, whereas the others all fell considerably further.
ANZ was the next best return, and NAB the weakest, rallying only to the 50% point of the bear market range. This is consistent with it being the last to make a low, in March of this year.
Currently we are seeing all the banks with tops around October. If the market were to push higher, CBA is again looking in the strongest position, not having fallen far from its highs. WBC has fallen the furthest, but may look to find support on the 50% level of the range. NAB is again in the weakest position, trading below the 50% level.
Knowledge is Power!
Tim Walker
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