ANZ, MQG and WBC all went ex-dividend in May, yet the profits made by shorting these stocks were greater than if you held them and taken the dividend. It is also interesting that other banks such as NAB and CBA also fell in May. I am probably starting to sound like a fundamental analyst, but actually that couldn’t be further from the truth.

In my last article for, I indicated the potential of a strong fall for Westpac as a great short setup presented itself. It wasn’t an easy one to get on, but if you were short from the tiny first lower swing top you would be patting yourself on the back this week and not be too worried about whether you should be reversing or looking for the next short!

Chart 1: Big 4 Banks Daily Bar Charts

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click to enlarge

Chart 1 shows the ‘big 4’ banks and their recent moves. They were all great shorts but my favourites were WBC, which made it to 600% of that first lower swing top and CBA, which made it to 200% of its first lower swing top. By combining price and time analysis it was possible to be on to these runs from very early and generate impressive returns.

Now we turn our attention to where the market might go from here and whether this is the start of an extended down trend. The first place to look to answer this question is the swing charts. I am going to use CBA for the rest of this article but you can follow the same process on any of the banks. Be sure to apply your analysis to the right chart as the banks can diverge in their moves.

Chart 2 below displays the daily and weekly trends for CBA. The daily is clearly in a down trend but the weekly is showing an uncertain trend, with expanding ranges in both the up and down swings. What is interesting is the higher swing tops on the weekly chart since late last year. We might see a continued move down in the short term but if this turns around and swings up for a week, then an up-trend will be confirmed on the weekly chart.

Chart 2: Daily and Weekly Swing Charts for CBA

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click to enlarge

At the time of writing there are some ABC short trades presenting across the banking stocks. These tend to have large AB ranges and small BC retracements, which aren’t ideal for ABC trades. However, these factors alone aren’t enough to discard the setup.

Make sure you look at the bigger picture and ask yourself whether there is resistance above the trade or support below it. If there’s nothing in the way, it has a greater chance of success. Look for price clusters that line up with milestones for profit targets. We might see more of a rally before further falls but there is potential for more downside before the market resumes its uptrend.

It’s the Journey

Lauren Jones