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Trade Of The Week: Fibonacci trade on the Big 4 Banks

November 18, 2020

Trade Of The Week: Fibonacci trade on the Big 4 Banks

The Aussie market continues to rise following the US election result and the announcement of two potential coronavirus vaccines. The Big 4 banks have contributed to the rising market and are now at important technical levels.

The Aussie market continues to rise following the US election result and the announcement of two potential coronavirus vaccines. The Big 4 banks have contributed to the rising market and are now at important technical levels.

 

Since the Feb/March pullback, the (ASX:CBA) stock price has been experiencing support and resistance around the 38.2%, 50%, and 61.8% fibonacci levels. The first test of this 61.8% resistance level was on 12th of June and was unsuccessful. The second test was during today’s session and the market closed above this resistance level.

 

(ASX:WBC) has a similar story, but with it’s 38.2% and 50% levels playing a major support and resistance role. (The $1.3 billion AUSTRAC fine has pushed (ASX:WBC) price action to the lower end of its fibonacci levels). The first time the market tested the 50% level post-March was on the 9th and 10th of June when it gapped above this resistance. The move was ultimately short lived and the market has traded below this level since. Today (ASX:WBC) traded closer to the 50% level once again.

 

The similarities continue with (ASX:ANZ), having tested the 50% level on the 9th and 10th of June then pulling back. However, (ASX:ANZ) reached this level again on the 11th, 12th and 13th of November and was ultimately successful at pushing through this resistance level on the 16th of November. Today, (ASX:ANZ) continued trading higher towards the 61.8% level.

 

(ASX:NAB) also tested the fibonacci level on the 9th and 10th of June then failed to consolidate above this resistance level. (ASX:NAB) has been trading above the 50% level since the 10th of November after gapping higher. The stock has now closed above the 61.8% level.

The recent price action across all four of the big 4 banks suggests a big move is on the horizon, either bullish or bearish. Seeing the big 4 banks constitute 17% of the $2 trillion ASX 200 market capitalisation, a large synchronous move will be reflected on the XJO indexes price action, and would likely impact other high beta stocks.

 

Given the current technical issues with the ASX and the lower liquidity levels, the easiest way to take a position on the banks or the index is with a single long call or put (IV is too high for a straddle).

If you believe the market is going to continue it’s bullish breakout as the banks push through their fibonacci resistance levels, a long call will capture the upside potential.

If you believe the market will experience resistance at its current levels, a long put will capture the downside potential.

We would expect the move to happen quite quickly so you would want to be in and out of the position over 5-10 trading days. This short horizon will limit time decay, and IV is still quite high so theta can be expensive.

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We wish you good luck with your trading, and as always if you have any questions, please feel free to contact our trading desk on (03) 8080 5795.

 

Past performance is not a reliable indicator of future performance.

Trading options is not suitable for everyone. There is a risk that you can lose more than the value of a trade or its underlying assets. You should only trade if you are confident that you fully understand what you are doing. If you are thinking about acquiring a financial product, you should consult our Financial Services Guide (FSG) at www.reachmarkets.com.au first. 

 


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