Noel Campbell
Noel Campbell 		My focus on NAB has been no secret over the past couple of months. It has been a big week in the news for the bank. Seemingly deserted by all quarters. That’s what can happen when you announce profits are likely to be down for the foreseeable future. The outlook for NAB is uncertain, but may not be as negative as it seems.

The numbers measured up for some support according to a cluster on the Ranges Resistance Cards and the triple bottom on the weekly chart. Given the chance to trade this set-up on the swing chart was an opportunity to pursue some profits too good to miss. Considering the longer-term perspective of the set-up, the weekly chart was the time frame of choice. The first higher swing bottom (Gann’s safest place to buy) was an ideal approach for taking a long trade off the support.

The challenge when considering the potential of the set-up is not to fall in love with visions of where the stock might go. We had more than enough going for us with the Price Forecast to expect some support. But it always pays to be watching out for bouncing dead cats!

Chart 1 shows the last few months of action on the daily bar chart of NAB. I have highlighted the day that signalled the entry on the weekly chart. The line chart of the NAB Futures contract has been overlaid over the bar chart. I took the trade using the NAB ISF rather than buying the physical stock. At the time of entry, the futures had moved to a premium relative to the stock price. Though as you can see, it had only been a few weeks prior that NAB futures were trading at a considerable discount to the stock price. This is because the market makers where factoring in the effect of the pending dividend on the NAB stock price. The day after the dividend was paid the stock dropped considerably (as expected) and the futures began trading at a premium.


Chart 1

click chart for more detail

The pricing of the futures contract by the market makers relative to the stock price is governed by a formula. The two main variables in the formula are whether a dividend is to be paid before the contract expires (and still has not been paid) and the time left to the expiry for the contract. The market maker often needs to hedge the position you take with him. Therefore, a premium is factored into the quotes to cover their hedging costs. As the contract moves closer to expiry, this premium dissipates linearly over time. Unlike time decay with options, which dissipates exponentially. But that’s enough for the ISF lesson for now.

I’m not sure how many clients were on this trade. I have spoken with a couple of clients in my travels that managed to take a profit on the run up to the $30.98 high, feeling after exiting the trade that profits were taken too soon. I’d say that feeling has long since passed, considering the share has fallen like a skydiver without a parachute, in the last few days.

Over the past couple of weeks I have been as far north as Singapore and south as Hobart, some business and some pleasure. A week on Magnetic Island camping with my son was certainly a highlight. One thing that I had packed with me was the numbers representing the Pressure Points for the previous weekly range. It was during the Darwin Trading Tactics that NAB reached the 100% target of $30.97 based on the previous weekly range. Sitting on a profit of over one hundred points per contract and having reached the 100% target, it seemed the right time to take the money and run. Sometimes aiming for percentages over 100% can be getting into the greedy territory. So with the stock at $30.94 I closed out my position for a profit.

There was no real way to have known that NAB was going to drop as dramatically as it did. However the lessons that David and Gann have taught us say: watch your Pressure Points and know when to take a profit at your targets. It nearly blew me away the morning NAB opened down over $1.40 and kept going. What doesn’t amaze me is just how valuable Pressure Points proved to be once again. Here’s a cheer to Mr Bowden and Mr Gann.

Until next week......

Noel Campbell