"NAB: where is my Wave 4 retracement ?"

Back on the 20th April, National Australia Bank reached its wave 3 high, and since then we have been waiting for the confirmation of the Wave 4 retracement.

In the chart below for 29th April, we can see that driven by the Greek sovereign downgrading to Junk Bond status, the 230 point drop in the DOW, the US Fed keeping rates on hold, a plunge in the EURO and Athens activating the country line of credit sooner than expected, you would have expected the Wave 4 to kick in with a vengeance.

But alas no - it seems that the 25% retracement level of $27.88 is a real stumbling block and NAB seems very resistant to dropping below this point.

However price has dropped out of the regression channel and we have strong drops in the stochastic & MACD with sell signals in the CCI.

We wait in hope for a confirmation soon - at least before our May PUT options degrade too far !

Cheers

"... NAB - is this the fun park : 198% profit, what a ride"

Back on the 5th March 2010, I posted my analysis of NAB which looked as if it was completing the final legs of a Wave 5 down. Here is the link.. : NAB-is-this-fun-park-are-we-having-fun .

The analysis indicated that NAB should begin to rise within a week, so I began to watch the stock more closely for indications of an early wave 3.

Here is a quick update of how thew trade unfolded.

On the15th February we saw NAB bottoming with a Doji indicating confusion in the market.

This Doji was also around the Fibonacci target for the end of a wave 5, so this added some weight to the idea that the current wave 5 was running out of steam.

In addition, the daily volume was also low and below average.

One of the early signs I was looking for, was signs of gaping in the price as Wave 3 began and as we can see from the chart I posted back on March 5th, we have evidence of gaping at the end of Wave 2.The entry signal is when NAB rises above the Wave 1 high.

This was the signal to get ready to buy a long Call. The next issue was which Call to buy. By selecting an OTM long Call, we can minimise our upfront cost, and by looking for a Delta as close to ATM as we can afford, this will improve our speed into profitability. I purchased an April $26.50 Call.



When looking at the Deltas, ideally you should select a delta between 25-35. These options are cheaper because they are OTM, but are on the cusp of moving into the steepest part of the Delta curve, and as such, move much faster into the money and improve our profit leverage and eventual ROI.

By the 4th April we had a high Doji, indicating indecision in the market. There was no real news pending, and NAB was very close to the Wave 3 Fibonacci targets, so I decided to take the trade off after 46 days, for a 198% profit.

The next step is to watch the price make a new low off the recent Doji high and break below the current support line to indicate a wave 4 is beginning. At this point I will look to reinstate my Collar to protect my shares by buying some $27.50 or $27 May Puts as well as selling a $28.50 Call to offset the cost of the PUT insurance. The PUT selection will be guided by the delta. My objective is to get a delta around 35, as I have noticed that with the shorter Wave 4 you need a bit of speed to get into profit as quickly as possible.

Now all I need to do is wait and watch.

Cheers