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The dividend payment for Westpac Bank (ASX:WBC) is due early next month. This is a good time to take a look at the market action for this Australian major and consider how we might trade into and out of that date. Westpac is currently hovering around the $22 mark, which is back up at the levels of the tops in May, June and July this year and just above 50% of the range from the April, 2011 high to the August, 2011 low. Chart 1: Westpac Daily Bar Chart with Ranges Resistance Card
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A stock often rises as it approaches an ex-dividend date and then falls immediately after it. Last year, Westpac produced a price rise into early November followed by a big gap down on the ex-dividend date (8 November) with the market continuing to fall into late November. Using an advanced entry such as the Closer’s Rule on the day before the 8th and then simply trailing stops behind 1-day swing tops offered a nice reward:risk ratio of about 6.6:1. Exiting on the close of November 26 would have produced better than 8:1. Chart 2: Westpac showing ex-dividend action from 2010
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With this in mind, and taking a closer look at the chart for price resistance ahead, I can see two possible scenarios. The first is that we will have a run down from the current price levels and that Westpac will hover around $22 until the November dividend date, perhaps creating a minor double-top at that level. The other scenario takes a bigger picture view and factors in the gap looming at the $23 level, which was created in May this year and hasn’t been tested since. Interestingly, this gap lines up with 50% of the bigger range from the April, 2010 high to the recent August low. (I recommend you also look at how this gap lines up on the All Time High Resistance Card and on the 2009 Low Resistance Card.) Chart 3: Westpac showing price cluster of gap with 50% range
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If the market were to run up to this price level and double-top, there is potential for a big fall from there. I will be looking for any opportunity to take a brief long trade into the days before the ex-dividend date but, more importantly, I will be looking to trade short out of that date, particularly if the market action lines up with either of those price points I have mentioned.
Remember: if you are short on the ex-dividend date, you will have to pay the dividend. Your broker will simply take it out of your account, which will eat into your profits a little but you should be compensated by the subsequent fall in price.
Keep stalking Westpac and be ready to trade what the market presents as it won’t always be precisely as we forecast.
It’s the Journey
Lauren Jones
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