"NAB leaking on the inside ...."

The normal average daily share turnover for NAB is around 5.8 million per day, however on Thursday 26th September more than 10.7 million shares were traded before noon with the day finishing with around 15 million shares being traded.

NAB share volume - 26-9-2013

Another interesting observation was that NAB's share price has been surging recently from a low of around $29 four weeks ago to a current price of around $35.45.

NAB share price surges to drive a wave 3 high - 27-9-2013

So who is driving the interest ? If we look at the 5,35 Oscillator which tends to indicate retail buying we can see it has curled over and is dropping, but the 10,70 oscillator which tracks institutional buying is still growing strongly.

Retail - 5,35 Oscillator

Institutional - 10,70 Oscillator

So we have price and volume surging and it seems to be driven by the institutional buyers pushing the Elliott count to a strong wave 3 high. Clearly a good question is where is the price rise likely to slow and head down - just what is a reasonable peak price for NAB? One of the ways we can investigate this question is to look at the CALL option volumes for October to see where the smart money is putting the option volume.

NAB PUT Option volume - 26-9-2013

Now for every share buyer there must be a seller and when we looked at the Call volume compared to the PUT volume, the $34 PUT options are materially pumped up at 8,900 contracts with around 7,300 being done before noon, compared to the usual average of around 100 - 300 contracts. At the time this PUT volume was transacted the deltas for this strike was around 22. Interestingly, a few days earlier when the NAB price was lower, the PUT volume was going through on the $33 PUTs with the volume of PUTs reaching 13,300 which is also materially above the daily averages, and at the time the delta was also around 25.

As an option trader, the most cost effective point to buy options is at a delta between 25-35 as this is the flat spot just before the delta curve really steepens up. The logic for this type of strategy is that if you are right on direction, the option really picks up value via the faster leverage as the deltas increase non linearly. However if you are wrong, the options slide back onto the flat part of the delta curve and you do not lose much of your option investment.

The key point here is that this PUT volume is really extraordinary. Thus the indication here is not so much the buying strength from the institutions, but rather the selling strength and with the current price at $35.40 at a wave 3 high and a wave 4 retracement in the wings, it seems further confirmation that the wave three is correct and a wave 4 is following.

Now, with price and volume surging, combined with enormous PUT option volumes being placed on NAB, this would seem to suggest that someone at NAB has leaked some sensitive market moving news or that some of the key institutional players know something about NAB, such as an unfavorable announcement around profit guidance or M&A activity etc. that may be due for release to the markets soon and they are getting in ahead of time before the price declines. If this is what is causing the abnormal trading activity, it would seem that the institutional traders may be continuing to push the price of NAB up close to when the announcement is due to take place, whilst simultaneously they also buy considerable downside protective PUTs to lock in their profits, leaving the poor retail investor to foot the bill for the institutions profits as they sell out at the price high on the extended Wave 3 high, and take further profits from the heavy investments in very large protective PUT positions.

Time will reveal just what the insiders know and a Fibonacci time projection suggests around October 3rd is a clustering of actions.

Just remember that the ASX is not that deeply liquid at the best of times, and with these abnormal PUT volumes lurking, caveat emptor .....

Cheers

"as the world slides into further decay ..."

"day after day, alone on the hills,
the men with the foolish grin are keeping perfectly still ..."

and they think that nobody notices, but we do, to our shame.

Cheers

"standing in the corner and the paints is still wet ...."

Where are we at with NAB ?

It looks like we are into the home stretch for a wave 5 sell on NAB. Previously we looked at the NAB option chain  at the beginning of august and the volumes and open interest all pointed to NAB rising through August with a price high tipped to be in the vicinity of $32.50.

NAB wave 4 retracement - 30th August 2013

Wave 4 analysis :

In the chart above, the key features are :

1. The wave 4 retracement should ideally be between 38% - 50% and NAB has retraced right on the 38% point.
2. The retracement has been confirmed by the Elliott ellipse study (in yellow) showing the retracement ended right on the ellipse support.
3. The wave 4 was also confirmed by the Elliott Trigger indicator (not shown) which cut above the zero line on the 15th August.
4. The wave 4 retracement held at the second level of wave 4 support lines shown as green XXX above indicating around a 60% probability of the next wave 5 making a new high above the previous wave 3 high of $31.52
5. Finally, the Profit Taking Index (PTI), should be above 35 and NAB weighs in at 50 further supporting the potential for a higher wave 5 finish to the month.

The key question here is, "where will the NAB price slow down, roll over and enter into a declining trend ?" To analyse this we look at the following chart and notice that the previous wave 3 is a complex wave, which the NAB wave 3 is, then we would expect the wave 5 target to move up to a 61.8% Fibonacci level, which is the exact point that NAB hit on 27th August.At this point there was an expectation that NAB would begin to retrace into a short wave 1 and then back up to around $32.75 as a wave 2 before dropping materially down to around the previous wave 4 at $30.28.

NAB wave 5 - August 30th 2013

However, today September 2nd, NAB had stormed ahead and at noon today has hit a high of $32.95 which may indicate two possibilities.

1. The original analysis of the option chain volumes indicated a potential target price based on PIN risk and volumes on the chain at the beginning of the month, of $32.50. In our case, today's price has more than hit that level and also aligns neatly to the Fibonacci level of 61.8%.
2. The second interpretation is that one of the Fibonacci guidelines is that if you break above one Fibonacci level you are generally heading for the next, which in our case is $34.27 which I feel is unlikely. To investigate the possibility of reaching this level we can analyse the sub wave patter in this wave 5 movement which can be seen in the chart below.

Wave 5 inner sub wave extension - 30th August 2013

Using the same logic as discussed above, if we expect the wave 5 to extend to the 61.8% point on the chart, then the sub wave 5 has a potential target of $33.41. However a more likely range is between the 50% and the 61.8% target which gives us a lower target of $33.12 up to $33.41.

Planning the trade

As NAB gets into the range above $33.12 we need to begin setting up our trade for the wave 5 sell with an expectation of a retracement back down to the previous wave 4 low of $30.27.

1. To fine tune our timing we use the 7,4 displaced moving average. Once price cuts below the DMA we will enter the trade and place stops above the previous high.
2. Guidelines for highlighting the area of the wave 5 peak include looking at the 61.8% Fibonacci point but added to this Elliott mentions drawing trend lines from the wave 2 & wave 4 points and using parallel copies to extend out from the wave 1 and wave 3 peaks.It is postulated that the wave 5 high should end when price gets between these two extension lines, which in our case is $33.12 & $33.41

NAB Sub wave 5 trend target zone - 30th August 2013

Now the game is one of being patient until the DMA is tripped. The chart below shows where we are at 1pm today and at this stage things all seem to be on track.

Hopefully I haven't painted myself into a corner and these are not famous last word and I live to analyse another day ?

 Cheers

"the donkey pulls the pin on NAB ..."

Back on August 2nd I looked at the option chain for NAB and it seemed to suggest that the smart money was hedging at around the $32.50 mark indicating that in the short term over August the direction was predicted to be up from the current low around $29.50.

Looking at the price chart below we can note 4 things :

1. The price trend and regression pattern have in fact been upward trending since the beginning of August.
2. Within the current wave 3 is a sub 5 wave count indicating that the next price target is around $33.19 and confirms the earlier price prediction of a $32.50 price target based on the open interest and volumes in the early option chain denoting where the expiration PIN risk might be for NAB.
3. Finally, I like to use the ADX as an indicator for entry and exit. The key element worth noticing below is that the DMI + & - lines are diverging quite strongly and the ADX line is moving up quite strongly indicating a strengthening pattern. Technically we would look to enter a trade with strong divergent DMI lines once the ADX line is between the two DMI lines and this looks to be about to take place next week.
4. If you follow Elliott wave and Fibonacci, one of the guidelines is that if you break one Fibonacci level you are heading to the next, which in our case is the 100% extension level at $33.19

NAB price chart - 23rd August 2013

Another point of reference for the Elliott Wave enthusiasts in the above price chart is that the inner 5 wave sequence shows a wave 4 retracement which halts right on the 38% point which is a classic retracement point.

The next step in refining this type of analysis is to check the option chain for August at expiry to see if the PIN risk prediction for August is confirmed and whether the September chain volumes are still indicating a retracement to the low $30's as this would be in line with the Elliott pattern shown above.

Cheers

"Pin the tail on the donkey trader ..."

Looking at the option chain for National Australia Bank below, (NAB.AX), I notice a couple of interesting observations :

1. The open interest for the August chain, there are 6,550 PUT contracts for the $30 strike and 9,290 CALL contracts for the $32. If we assume the big fund managers are pushing the price on market around for the stock, then by the August expiration we might expect the stock price to gravitate towards $32 as this is where the bulk of the risk hedging has been placed.
2. When we analyse the September chain, the bulk of the contacts are for the $31 CALL(8,330) with the PUTS having their peak open interest at the $29 strike (5,300)
3. Taking each of these points together, it would seem to indicate that in the near term NAB was set to rise to around $32 and then by September the price would pull back to at least $31 or even $29.

If you believe in PIN risk, it is an interesting theory, but is there any other evidence we might be able to review to get some comfort on the direction of the NAB price in the near term ?

NAB Option Chain August & September at 11.30am 2nd August 2013

One other piece of information we can look at is the Elliott wave count for NAB to see if there is a similar pattern.

If we look at the daily chart below, we notice the following indications of direction :

1. NAB seems to be in a rising Wave 3 with the first target around $32.50 which lines up with the August Call Open Interest target.
2. The 10,70 Oscillator, which is used to track the corporate money and influence, suggests that NAB is still rising.

 

NAB Daily chart 2nd August 2013 @ 11.30am

 Interestingly, it seems that the Wave three is near it's peak and looks to be getting ready to retrace back down to around $29-$30 which is where the bulk of the Open Interest is at present for the September chain.

Whilst these are only observations, they do seem to line up, so time will tell if this theory holds up and we do not end up being the donkey being pinned.

 

 

Cheers

"mid life crisis or introspection ....?"

Melbourne French Film Festival 2013

Over the past few weeks I have been attending the French film festival and there seems to be a recurring theme in many of the films I have seen. Predominantly it seems to be people time lapsing either forward or backward in their lives, being confronted with either a situation or the realisation that they are not nice people and attempting to deal with the situation for the better before shifting back into their original place in time.

Therese Desqueyroux is an independent women with strong independent thought that the luxury of great wealth allows  But even from an early age she seems to accept that she must marry Bernard, the son of another local land owner in order to form an alliance and stronger family fortune. As time progresses, Therese becomes more introverted and reflective of her youth to the point where she attempts to poison her husband in order to escape the life she is trapped in.

 In "Another woman's life", we meet up with Marie when she is around 20 and meets Paul for the first time. She is absolutely captivated by him and see her life just beginning but when she wakes up in the morning she has skipped ten years of her life, she is the CEO of a successful company, feared by her employees, a stranger to her son and in the process of divorcing her husband - all before she has had the chance to experience the passion of life. We do not know why she has jumped a decade of her life but we follow her struggles to understand her situation, reacquaint herself with her family and get to know her son, deal with her role in the corporate world as an economic sage and builder of companies and most important of all, she grieves for the loss of her husband and works frantically to head off the divorce that is rapidly becoming a train wreck.

 In Camille Rewinds" we see Camille as a 40 something woman, who life is in ruins, the husband she loves is in the process of selling the family home and divorcing her. On New Years Eve, Camille goes to a party of her old school friend and because of the futility of her life at this stage, she is drinking heavily and passes out in an alcoholic stupor right on midnight. When she awakes she is 16 and back in school and has to deal with all the frustrations that bubble to the surface. The absurdity of every day tasks ar a constant challenge to her, riding her bike to school, squeezing into gym clothes, avoiding boys, being lectured at by teachers are made all the more difficult because although all those around her see her as a 16 year old she looks to us and herself as still the 40 year old woman with all the emotions and memories of that 40 year old woman. Key among those memories was the day her mother died of a heart attack and it is this event in her life that is central to her review of her life and the relationship with her parents and the plight she has to try and circumvent the death of her mother. All to no avail. However as we see towards the end of the film, in the same way that Camille could remember her life as a 40 year old women when she was spun back to her teenage years, she could remember the love and affection for her husband whom she met at school all those years later when she returned to her current life. The closing of the film sees Camille reworking her life and affections for her estranged husband and saving the marriage.

In each of these films I cannot decide if it is a coincidental theme of whether the French film industry is in the dramatic throws of a mid-life crisis on is contemplating either it's past successes and failures or the confusion about the path into the future. Clearly the films at this years event are significantly below the standard of the 2012 film festival in my humble view.

Cheers

"trading the plan ..."

"... everybody has a plan,
until they get punched in the face ..."

Mike Tyson - World Champion Boxer

Volatility is still lurking even though the VIX is down at 13. Rising markets breed complacency.

Cheers