NAB: Avoid For Now

This story features NATIONAL AUSTRALIA BANK LIMITED. For more info SHARE ANALYSIS: NAB

Bottom Line 05/12/17

Daily Trend: Down
WeeklyTrend: Down
Monthly Trend: Down
Support levels: $29.00 / $27.79 / $25.14
Resistance levels: $32.98 – $34.09

Technical Discussion

National Australia Bank ((NAB)) is a financial services organization providing products, advice and services through its major Australian franchise and businesses in the United Kingdom, New Zealand, the United States and Asia. In New Zealand, it operates through Bank of New Zealand. In April 2014, JB HI FI Ltd announced that National Australia Bank Limited and its linked entities ceased being a shareholder of the Company. For the year ending the 30th of September 2017 interest income decreased 1% to A$27.4B. Net interest income after loan loss provision increased 2% to A$12.36B. Net income applicable to shareholders, excluding extraordinary items decreased 3% to A$6.08B. Net interest income after loan loss provision reflects an increase in interest earning assets and a decrease in interest bearing liabilities. The dividend yield is currently 6.3 %. Broker/Analyst consensus is “Hold”.

Reasons to be cautious medium term (longer term outlook still bullish):
→ Recent results not taken well by the market.
→ New bank levy has this market sector skittish
→ A strong capital base is beneficial for maintaining the dividend.
→ The risk of capital raisings has abated.
→ Good value based on earnings compared to its peers.
→ Costs appear under control yet being monitored
→ The company has sold GBP625m of underperforming UK assets. This releases GBP127m of capital.
→ Ongoing growth questionable.

It’s no secret that we haven’t been fans of the big banks over the past few months, irrespective of price climbing higher off the late June low. In fact, during our last review the typical retracement zone of the prior leg down had been overcome which under normal circumstances would be positive. However, in this instance we’ve been as confident as we can be that the leg higher was corrective in nature, keeping the door open for another swift leg South. Over the past few weeks that’s exactly what’s transpired with the Banking sector embarking on what should be the final probe down at this degree of trend.

On the back of price continuing up through the 61.8% retracement level, we have amended the wave equality projection which now sits at $27.89 and isn’t too far beneath current levels. There is confluence at those lower levels with the 61.8% retracement level of the prior uptrend sitting slightly lower at $27.79 providing an area of confluence. As always, the more confluence there is, the greater the chance it’s going to prove to be significant. One thing we have to be aware of though is the recent announcement regarding a Royal Commission into Australia’s Banking sector which obviously hasn’t helped sentiment. The big four banks have sold-off and many analysts are suggesting it’s only early days with further downside likely. This fits with the technical picture over the short-term although we aren’t suggesting Armageddon is about to hit. No doubt there will be further developments on the subject in due course although this doesn’t necessarily have to be bad news. Either way, we’ll keep abreast of the patterns and let those dictate the outlook.

Trading Strategy

I wouldn’t be tempted to try and trade the anticipated leg down, especially as the target only sits around $28.00 which isn’t significantly beneath current levels. In fact, signs of buyers around that target zone, by the way of some high closes and increasing volume would offer a buying opportunity, especially if you want exposure to the sector. We still believe it’s a sector to avoid for the moment although patterns and sentiment can change at the drop of a hat so we’ll keep taking a regular look at the banks for signs of improvement.

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

Risk Disclosure Statement

THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.

Technical limitations If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms