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Macquarie Group (ASX:MQG) is a large banking and finance company in Australia. It is one I rarely write about but this week it is in an interesting position and might be worth a closer look. The stock topped in September, 2009 and spent the next two years running down in what could be seen as three sections. Since September, 2011, the market has rallied about the same price range as the other rallies between sections but it has taken much longer to do so, implying that the market was neither ready to continue the down-trend, nor start a strong up-trend. Chart 1 illustrates the sections I am referring to and the subsequent market action:
Chart 1: MQG Weekly Bar Chart with 3 Sections Down
click to enlarge
There is an ABC short appearing at the time of writing (1pm, 27 June), but what pricked my interest was the position of the market at the moment and the dates of the recent major turns. The market rallied from 26 September to 28 March and then fell to the most recent low on 26 June. While there is nothing to say that the market will rise from here, if you have studied Time by Degrees you will note the relationship between these dates.
There is also a retracement to 50% of the price range from September to March and, interestingly, this has occurred in 50% of the time. (As an exercise, you should check what has happened previously when MQG retraced to a 50% level).
Chart 2: MQG Daily Bar Chart with 50% Retracement
click to enlarge
Chart 3 shows the daily action and we can see that the market has reacted off this 50% level several times before. First it formed several tops and, as we know, “old tops become new bottoms”; before recent lows were formed in May and June. These lows got within points of the 50% level but didn’t actually reach it. The telltale sign will be if the market pushes through this 50% level, potentially turning the current support level into resistance, or if it rebounds up after having finally touched it on 26 June.
Chart 3: MQG Daily Bar Chart with Support and Resistance from 50% Level
click to enlarge
To trade this potential turn, I will be watching for a clear break to the upside or a break below the May and June lows, with strong volume supporting either move. Unless this occurs we might find that a tedious sideways period develops and we might be better off looking elsewhere.
David Bowden quotes W.D. Gann when he tells us that the safest place to trade is the first higher swing bottom above a support level or first lower swing top below resistance. The current setup on MQG is one we can stalk for just such a trade, and if the 26 June low holds, it could very likely form the point A for a long setup.
It’s the Journey
Lauren Jones
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