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If you are interested in trading the Banking Sector but haven’t as yet started specialising in any particular stocks, an analysis of the ‘Big 4’ provides an interesting comparison. By applying some ranges resistance cards, some stocks appear stronger than others. For example, taking the bear market from the 2007 top as our range, we can see that CBA is the only bank still holding above the 50% level. Does this mean it is strong in comparison to the others or does it just have further to fall?
click chart to enlarge
CBA has certainly regained more of its share price from the 2007 highs than the other banks, which is encouraging from a long-term investor’s point of view. But as traders we are more interested in trading the moves in either direction than the long-term capital gain.
Looking at the more recent 2009-2010 bull market range, we can see in Chart 2 that this gives us a slightly different picture, with both ANZ and CBA holding above the 50% levels, and NAB and WBC having just crossed below them.
click chart to enlarge
The monthly chart indicates a compression of price and we are looking for a move in either direction. We might see a false break to one side before a serious move in the other direction or we might just see a break-out with a more sustained move. It is at this point that I stop comparing the different stocks and start looking in detail at them individually.
For example, in January we saw CBA break through multiple bar chart tops, in a classic Number One Trading Plan move. While we saw strong volume supporting the breakout that day, there was no sustained move, which suggests that perhaps the market wasn’t yet ready. Perhaps it wasn’t yet ‘Time’ for the sideways period to end.
click chart to enlarge
Time analysis has been a big factor in my CBA trading in recent years. When price clusters line up with time cycles, there have regularly been clear changes in trend. The key has been to look at the bigger picture each time, as sometimes the small picture setups haven’t been as significant.
At the time of writing, CBA is ex-dividend, but this has not affected the price. This is quite unusual when compared to previous February ex-dividend days, so I will be watching for the market to move out of its current doldrums in coming days and weeks.
Whichever bank you choose to follow, you will find that resistance cards and repeating ranges give some great price pressure points to watch and analysis of time cycles repeating on a small and large scale will benefit your trading. Keep watching for a breakout from the current move as it can’t keep going sideways forever. The past few years, while tradeable, have been quite choppy and if a clear trend develops, then trading the banks will be all the more profitable.
It’s the Journey
Lauren Jones
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