"NAB - rewarding us with high risk ..."

Back in mid March, NAB finally snapped out of the channelling wave 4 that it had been wallowing in for close on eight months and since then has been in a significant wave 3 rising to a recent high of $28.18.

NAB Daily - 12th May 2011

In the chart above we can see that the Wave 3 looks to have completed right on the price predicted by the MOB - $28. So where to next ?

Elliott Wave theory would suggest that there will now be a pull back to around 38% and then the upward trend would continue with a new Wave 5. Well that's the theory anyway. The immediate concern is that if we look at each of the points 1, 2 & 3 marked on the chart, each of them in turn looked as if it may have been the peak of the wave 3 and when the retracement began the price retraced to the 38% point and then returned to the upward trend. Even today the DOW dropped 139 points and the ASX has opened down with NAB droppi9mng and as at 12.08pm, NAB had touched the 38% retracement. If the previous examples are any guide for us, we should probably wait to initiate any PUTs to protect us on the downside until it is clear whether NAB will break the 38% point and move onto a more solid 50-68% retracement level.

Whilst reaching the 50% retracement level might be a safer point to enter the trade, the price is virtually breeching the wave 4 band (green & red) and at this point there would be an expectation for NAB to halt it's decline and reverse back into the Wave 5 rising trend.

So the conclusion here is that NAB cannot meet a reasonable risk to reward ratio to incent us to take a trade at this point. We need to wait until the 50% retracement is breeched or the Wave 5 begins.

Cheers