"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