"NAB - trespassers presecuted with vigour ...."

Two days ago on the 29th March we observed that NAB appeared to be at a crossroads with the current Wave count in a Wave 4 and looking to begin the downward retracement into the next Wave 5 low. But there were some danger sign.

NAB Daily - 29th March 2011

In the chart above we were watching to see if price would turn on the first short term ellipse, (yellow),  or go on higher to the next longer term ellipse in blue. As we saw in the previous post, price was strong and had exceeded the 138% Fibonacci retracement which was signalling that a Wave 4 was potentially in trouble.

Our concern in the above chart is that if the price movement is too strong and travels up into the space of Wave 1 then we are likely to get a wave count. By April 1st this is what has happened.

NAB Daily - 1st April 2011 - New Wave 3

As price traded above the Wave 1 low, the Elliott Wave recounted and went from the Wave 4 high into a new Wave 3. Taking a plot from the previous Wave 5 high show the MOB target for this Wave 3 high around $28 by mid July. The question is how practical or possible is this as a target, and secondly are we now in a sustainable Wave 3 or will the pattern revert to the earlier Wave 4?

A conservative short term target would be to buy some May $26.50 Calls if you consider that the momentum is to continue in the near term. If you look at the wider global markets, the DOW in particular has just broken out of it's regression channel indicating possible weakness. In addition, overall volumes have been thin and unconvincing as the US markets rose over the past two weeks.

The lack of strong volumes over the past two weeks, together with the price bias for PUTs at the moment, one might be forgiven if they stayed out of this rally on the off chance that it is close to peaking and any trade would not yield sufficient reward to risk ratio to compensate for the markets skittishness.

Cheers