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It has been some time since I wrote an article on trading Westpac (WBC:ASX) and since then there have been a few good trades within what has essentially been a bit of a sideways pattern. One of those trades was over the Christmas period when volumes were low and most people were taking a break. In this article I will show what I liked about the trade and take a look at what might be coming up for Westpac.
As WBC rallied before Christmas, anyone in a long trade would have been looking for a price and time target to exit the trade. As with CBA, Westpac tends to have pre-Christmas rallies, unlike the SPI which often rallies to early January.
The first thing I was watching was the gap that was formed between 5TH and 8TH November. Note on Chart 1 this gap wasn’t quite closed on 17th December. Now I was also looking for a price cluster, and found this lined up with 150% of the last ABC long (Chart 2) and 37.5% on the ranges resistance card as shown in Chart 3. Chart 1: WBC Daily bar chart showing gap
click chart to enlarge
Chart 2: WBC Daily bar chart showing ABC pressure points
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Chart 3: WBC Daily bar chart showing ranges resistance card
click chart to enlarge
Now the combination of these 3 price clusters would give us some confidence, but we would like to combine this with some time analysis too. If you have studied Time by Degrees, take a look at how many hits we have from that date going backwards from December 17. Note 360° or 1 year previous was also a turning point which gave a nice little trade.
So we have a setup, but how could we enter the trade? Chart 4 shows us on 20th December you could have taken a short the openers or closers. If you waited for an ABC setup you would not have been able to enter within limits, but another short the openers opportunity presented itself on 24th December. Yes that’s Christmas Eve, so you’re excused if you missed this one!
Chart 4: WBC daily bar chart with trade entries
click chart to enlarge
We see that 100% of that ABC lined up with 50% of the weekly range from 26 November to 17 December, so that was a good profit target. The trade ran to 100% on 4 Jan where we would have closed our position for a reward to risk ratio of about 8:1. Notice that the low on 6 January was a balance in time with the run up from November?
So where to from here? It’s time to take a look at the bigger picture, so we move to the weekly chart. We can see that market action in the latter part of 2010 sat below 50% of the range down from April to July, indicating some weakness. But taking a bigger picture view the market has sat above 50% of the range from the January 09 low to the April 10 high. We would like to see it push out of this trading range before we could expect to see any long term trends emerge.
Chart 5: WBC weekly bar chart with 50% levels
click chart to enlarge
Lastly let’s review the swing charts (Chart 6) for Westpac, to see what perspective they give us. The 1 day, 2 day and weekly swing charts are all showing down trends, whilst the monthly is showing an uncertain trend. Note both the up and down ranges are expanding on all the swing charts. January is presently an inside month. If we see Westpac continue down below the December lows we will then see a down trend confirmed on the monthly chart and this will take us below 50% of the Jan 09 – Apr 10 range.
Chart 6: WBC Swing Charts
click chart to enlarge
In the short term we are seeing a balance of time on a 50% level, albeit a small range, with equal bottoms on 6 and 11 January. We might see some sort of rally before we see any further short trades.
It’s the Journey
Lauren Jones
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