Tom Scollon
Chief Editor		 I will probably get a phone call from a certain relative who works at NAB, after they read this week’s TT. It would not be the first curt phone call I have received after naming a company in my editorial. Yes – we are without fear of favour!

The fallout from NAB has not even started yet, even though we are assured by the bank the $180 million foreign exchange loss is minuscule compared with their $4 BILLION annual profit. It's not that I don’t believe Frank but the instos certainly don’t believe any longer.

Last week I wrote “NAB by far looks the weakest of the bank majors……”. Insider information maybe? Lunch with Frank? Neither. It is all in the daily volume. But OBV (On Balance Volume) digs even deeper.

OBV is an extension of volume studies and shows the relationship between price action and volume. A large volume day, where the price is increasing shows a rise in the OBV chart. Large volume days where the price is down shows a similar negative move on the chart. The size and direction of the move in the OBV chart is relative to the size of the volume traded that day and the size of the price movement.

I see OBV as telling where the smart money is – that is where the institutions are investing as they have sufficient volume to vote with their feet. Instos will vary their weightings in stocks according to their view of the stock – whether they are a believer or a doubter.

Since mid October last year – sounds strange calling 2003 last year – the big money about town started to disbelieve the NAB story and voted with their money and took funds out of NAB and other banks albeit to a lesser extent. One month later NAB announced a profit downgrade for the coming year but by that stage only retail investors were left with their full complement of NAB.

But NAB shares have risen steadily since early December, so why? Well, it has been dragged up by the overall market sentiment plus the dividend yield of over 6% in the banks has become fairly attractive. The big question is whether the momentum can be maintained? Have a look at OBV – falling when price is rising – not a convincing combination. My view is the NAB rebound cannot be maintained – it may continue for a period but the overall direction (look at your weekly chart) is down, down, down. NAB may well become a cheaper stock in months to come.

In any case at $30 a share it does not represent great leverage for the average trader. Besides a lot of capital would be required to make a decent amount of money. NAB share futures or options are likely to offer a better return on funds. Especially as the stock is now entering a period of uncertainty as the FX enquiry is held. The price could go either way. Great volatility ahead – great for leveraged traders.

Enjoy the ride.

Tom Scollon
Editor