Over the past few months we have been enjoying a surge in price for Australia’s Westpac Bank (ASX:WBC) from lows of around $20 in February to $23 in May. Trading one and two day ABC setups would have brought in some nice profits. As WBC pushed through 50% of the 2011 bear range, it shot up to where it sits at the time of writing – progress halted by 50% of the bigger range from April 2010 to August 2011.
Is this resistance enough to bring a pullback? Interestingly we have seen dramatic falls on the Australian market this week with the SPI and other banking stocks following suit. Yet WBC merely stalled rather than show any signs of a significant pullback.
Chart 1: WBC Daily Bar Chart with Price at 50%
click to enlarge
One price resistance level is not always enough to halt a trending market, so let’s take a look for a price cluster at this level. It is not hard to find that there is another 50% resistance level (07-09 Bear Range) around this price, as well as 27.5% of the 09-10 bull range. Have a go at putting these on a chart for yourself.
Safety in the Market students who have attended a Gann Jump Start, or above, might also like to look for a couple of angles from tops that could be acting as resistance for WBC at this level.
We saw strong tops form approximately one and two years ago on this stock, so it isn’t out of the question to expect some form of pullback now, but at the time of writing we have only seen one day down from this price level and on low volume. This was followed by an up-day that could be construed as a mini first lower swing top, but the up-day had strong volume. All of these are not showing indications of a down move starting from here.
So whilst we might have the beginnings of a good setup, we don’t just jump in a trade without some other form of confirmation. Volume is one of the indicators I like to use for that. Another is volatility, and that has decreased lately on Westpac, with smaller and smaller daily ranges and a nicely trending market. I have shown the 2-day swing chart in Chart 2, and you can see a clear up- trend with expanding up-ranges and equal down-ranges.
Chart 2: WBC 2 Day Swing Chart
click to enlarge
For now, this might be one to stalk. If no pullback eventuates, further long trades are in order as this stock will have been stronger than the resistance it is currently facing. If we do see a pullback I would be watching for any overbalance of previous down swings as well as 50% of the last weekly up-swing for potential profit targets. Keep watching the swing charts, including the weekly and monthly to give the bigger picture, and look for opportunities to practice utilising those Number One Trading Plan advanced entries, when a good setup prevails.
It’s the Journey