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A client recently showed me a setup on ASX:NAB which they considered a good opportunity to take a long trade using an advanced entry. In Chart 1 we can see that the current low is a possible double bottom sitting on 50% of the run up from March to October 09, and taking a look at time analysis we can see time by degree harmony suggesting that the June low could be a turning point. On your own you also might like to go through the resistance cards for this stock to find some other price support under this level. But would we trade it?
Chart 1: NAB Daily Chart with Double Bottom
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If we look more closely at this chart, we can also see a large gap in the price which was created by a dividend payment on 2 June 2011. When a dividend is paid, a stock’s price often drops by the amount of the dividend, and can often continue in that direction. I have shown the current gap in Chart 2 below.
Chart 2: NAB Daily chart showing gap
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Looking further back on the price chart for NAB, you will notice that last time they paid dividends in November 2010, the stock price also gapped down, and filling this price gap was not even attempted for several months until February this year when the price gapped back over. See Chart
Chart 3: Previous gap on NAB caused by dividend payment
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There has been no ABC long signal for NAB so unless you were stalking this stock you probably wouldn’t have picked up the time and price setup and wouldn’t be looking for the higher swing bottom which we can now see. However, as we start to specialise in a few markets this is the type of setup we will be looking for. Interestingly, there has not been a clear advanced entry signal either, so we are not in the market, but going forward what should we look for?
Chart 4: Stalking NAB
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In previous articles I have written that one of my favourite setups is a 50% retracement. I would be looking for NAB to attempt to fill the gap and in the process come back to sit under 50% of the range down from 9 May to 14 June. Note from Chart 4 that 50% is just below the top of the gap. If the gap isn’t quite filled then this will be a sign of weakness and I would be looking for another short trade. As always, we can only trade what the market gives us, so in the meantime, just keep stalking.
It’s the journey
Lauren Jones
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