Westpac - A Short Story?

The markets are at an extremely interesting point at the moment. The run up of the overall index has been outstanding and the fundamentals of the economy are continuing to show strength. At the top of markets things always seem the most bullish and the news of recent times indicates caution may be in order for the contrarian.

I am traditionally an exclusive exponent of Gann analysis. However that being said, I do see the merit of other forms of technical analysis. This week I have come across a powerful chart pattern that is a reliable indicator of pending market action. During the recent Software Smarts Seminars we were investigating the banks. Students who saw the value in attending these seminars may have received more than they ever envisaged.

A classic chart pattern amongst stockbrokers is the ‘Head and Shoulders’. Many of you may be aware of this pattern or may have overheard the term in the banter of the broker. Westpac Bank (WBC) is showing all the signs of a classic Head and Shoulders top. In Chart 1 I have marked the position of key areas that make up a Head and Shoulder pattern. You will see I have marked the spot where we came across this pattern during Software Smarts.

The market since that date has gone into free fall, reaching the neckline after coming off Shoulder 2. I will be watching for bounce in the share price off this proven support level. If the market makes a lower top to Shoulder 2 and heads toward the neckline a second time that support level will be in strife. If a bounce does not eventuate the stock could be considered very weak indeed.

In Chart 2 I have used the Tubbs 3 Point Swing Tool to identify a possible price for a future low should the neckline be broken. Points 1 is the 10 July bottom, Point 2 is the 6 August top and Point 3 is the September low. The resultant 100% Pressure Points comes out at $13.60. The perspective used here suggests that it may be a number of weeks or months before the market reaches this level.

The Trading Tutors Newsletter is not intended as an advisor service and good sound trading rules should be used to trade any subsequent price action. The fullness of time will be the judge of the success of this pattern. I am excited by the prospects this pattern offers and the market action of the next couple of months will not happen quickly enough.

Until next week......

Noel Campbell