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At a time when banks globally are getting jittery over the problems in Cyprus and more potential contagion, our banks are looking positive, at least in the short term. Let’s start with the index and then consider the four majors in turn:
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In the short term (on the daily chart), the sector looks promising until about September. The longer term prognosis (on the weekly chart) suggests a possible pullback later this year or in first half of 2014.
If this scenario plays out, the question is whether you should buy now and sell down before the slide. In other words, take a ‘position’ trade that may last a few months.
Let’s look at individual banks:
ANZ:
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CBA:
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NAB:
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WBC:
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Basically the big four show a similar pattern to the index. This is not a big surprise as these four banks make up over 60% of the index. Three banks – ANZ, NAB and WBC - show a potential (and perhaps conservative) move of about 10%. CBA, however, shows an upside of about 15% - much more attractive if it comes to pass.
The next part of the exercise is to calculate to what extent they may retreat. You could even go a step further and calculate the move from Wave Four to the new Wave Five high.
That is your homework. Hint: As suggested above, CBA warrants the closest attention.
Enjoy the ride
Tom Scollon |