"NAB - in the midst of an identity crisis ..."

Just on one month ago, (18th February), we looked at NAB which appeared to be topping out on a Wave 5 high. At this time we speculated that although the immediate chart for NAB showed an upward bias, the longer term weekly and monthly charts were still pointing down.

Since the 18th February NAB has indeed dropped significantly into a material retracement and as at the 20th March, it was finding support around $24.50.

NAB Daily chart  - 20th March 2011.

In the past, NAB seems to have exhibited a penchant for hitting a support, and if it stumbles around this point for 2, 3 or 4 days, then this seems to become a new bottom and the price turns from here.

In the chart above, we have this exact scenario around the $24 mark and the anticipation is that NAB would begin to rise over the next week. In fact this is what happened.

NAB Daily chart - 25th March 2011.

In the chart above,  NAB has maintained the support around the $24 level [A] which was also our previous Wave 3 target low [B], and begun a very convincing retracement for the next phase of the Elliott pattern which is a Wave 4 with a retracement target between the 50% & 62% Fibonacci target points [C].  This range is reinforced by the ellipse tool also targeting a level around $25 to $25.30 [E]

The objective will be to watch for the beginning of a new Wave 5 low. This will be indicated by the price breaking to the downside out of the regression channel [F] and then cutting below the 6,4 Displaced Moving Average. This should give a high probability entry point. Upon entering further PUTs to protect the portfolio's downside, a stop-loss will be placed at the high of the eventual high point around [E], where the stock turned down.

There are Three potential warning signs in the trade at present that we need to keep in mind. The first is that the price is getting very close to exceeding the red Wave 4 band which would signal that a lower Wave 5 is a remote possibility and that we may get either a Wave recount and this Wave 4 could turn into a Wave 3 and continue much higher or if the price retraces, the proposed Wave 5 low, has a higher probability that it would end in a double bottom around the level of the previous Wave 3 low [B].

The second warning sign is that the white long term ellipse target at [E], has not yet completed and is showing a higher price range above $25.50, and the third warning sign is that the 5,35 Oscillator, (below), which is below the price chart, is yet to retrace into the range of a 90% to 138% retracement in order to assist in confirming that the Wave 4 is over.

NAB Daily 5,35 Oscillator Retracement

In our case above, the Oscillator has quite some way to go before it is in the correct retracement zone. Now the Oscillator could retrace into this zone but in order to do so, price is either going to have to stagnate for a week or so or climb higher to push the Oscillator into the retracement zone. If the price goes higher it will invalidate the Wave 4 channels and potentially breach the maximum 68% Fibonacci level that I like to set as a maximum pull-back for a Wave 4. If the retracement is above the 68% level I think it is a good indication that there is something else going on in this stock and that we need to be alert to change.

So where to next ? This week is going to be crucial to assisting us determine whether NAB will breach the Wave 4 channels and recount the Elliott Waves from a 4 back to a rising Wave 3 or confirm the 68% Fibonacci level and begin the decline of a new Wave 5 low.

Seems NAB may have a slight identity crisis over the next week ....

Cheers

"Oscar would be rotating ..."

" ... memory, miss Cardew, is the blog we all carry around with us ..."

Oscar Wilde - "The Importance of Being Earnest"

 

Cheers