Ride the three-way Westpac oscillator to exhilaration
THE banks are back in favour among investors, who are said to be chasing their high franked dividends. But technical reasons may be attracting investors as well.
This week Mark Umansky, a certified financial technician with the Australian Technical Analysts Association, casts his eye over Westpac and finds an interesting situation. The bank's quarterly chart, shown here, is in what he calls a ''tri-phase pivotal'' position.
That's something that doesn't occur often and, he says, is an opportunity for great profit, as it offers three individual strategies to be employed in conjunction which provide growth potential while protecting capital.
Westpac was rising steadily in the years leading up to its record closing high of $28.50 in September 2007. Then it fell almost 40.5 per cent, reaching $16.97 in December 2008, a low not seen since March 2004. For the next 15 months investors pushed it up but it just failed to reach former highs, peaking at $27.84 before returning to what Umansky calls a ''negative-uncertainty momentum'' which saw it fall below $20 mid last year.
Taking a longer-term view Umansky sees Westpac having traded in a congestion phase for 21 quarters, or 5.2 years, trading between its record high and the low point of 2008. This long-term congestion phase is what he calls the ''tri-phase pivotal'' position, in which the market is waiting on news on the stock and a directional lead from the general market.
Such a situation ''allows astute traders either to be bold or protect their positions until further news becomes available and a clearer picture emerges of Westpac's growth potential,'' Umansky says.
The three opportunities presented are to be bullish, bearish or adopt a wait-and-see strategy on the stock. The power of the potential upward and downward movements comes from the fact that the stock has been in a congestion phase for so long.
The bulls have been dominant recently and, should that continue, Westpac may resume its upward trajectory towards its record high. If it does move in this direction, the breakout from the congestion phase could see the stock heading for $38 to $40, Umansky says.
But if the bears win out in the tussle and the bulls desert Westpac, it may break below the $16.97 2008 low and fall towards prices not seen since March 2000 of $10.50. The third option is that the congestion state remains and it continues to trade between $16.97 and $28.50 until more information on its performance becomes available.
As well as Westpac shares and exchange-traded funds, options or futures could be used to get exposure to possible movements.
This column is not investment advice.
The writer has Westpac shares.