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In my last article on Westpac I pointed out that it had finally pushed up above the 50% level that has acted as resistance for the past year. At present this is looking like a false break as the market has swung down and we are currently looking at an ABC short with point C back under the 50% level as shown in Chart 1. Chart 1: WBC 1-day ABC under 50%
click chart to enlarge
Now an interesting part of this trade is that point B is sitting at about 50% of the previous weekly range up from 17th March. I wouldn’t have been surprised if the market were to move up from here back through our bigger picture 50% level, but instead it is seeming to be hitting its head under that, making the short trade more attractive. This is a great example of the techniques we teach at ITW to use resistance cards to look for support and resistance for the trade. Try reproducing these ranges resistance cards as shown in Chart 2 for yourself in ProfitSource by using the Gann Retracement tool. Chart 2: Ranges Resistance Cards on WBC
click chart to enlarge
Let’s examine this short trade closely: From the swing charts we can see that the daily trend is down and the weekly trend is uncertain. We can also see we have an expanding AB range and a contracting BC range. The BC retracement is less than 50%. I was a little concerned that AB is a large range compared to previous so we might not see this repeat to 100%, but if we can enter well within 25% then we can reduce our risk and aim to take our profits at 75%.
The stand-out criteria supporting this trade was the Volume pattern. You can see in Chart 3 how volume was strong A to B and dropped for point C. This is an indication that the market is selling off their Westpac shares. Chart 3: WBC Daily Bar Chart showing Volume
click chart to enlarge
Remember to check before entering a trade if the stock is about to go ex-dividend. For WBC you can check this on the ASX website and you will see it is due to go ex-dividend on 16 May, paying 76c. The stock price will likely drop by that amount on the day but by being short you have to pay the dividend and this will come out of any profits you make. With this in mind you might reconsider whether it is worth taking this one. Assuming we decided to still take the trade, we were able to enter on 10th May well within our 25% limit, so now only time will tell how this trade progresses. You might like to paper-trade this one, because using the stock style of stop management most of your profits will go on the dividend. If you are paper trading try using all the various stop management styles. I’d love to hear how you go by posting on the Forum.
It’s the Journey
Lauren Jones
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