The Australian sharemarket is hitting fresh five-year highs and, with the US debt ceiling crisis out of the way (for now at least), investors are wondering whether the upward trajectory can hold.
The banking sector has been a significant driver of the market over the past year so this week we will look at a monthly chart for NAB produced by Robert Brain, a director of the Australian Technical Analysts Association. The NAB chart, Brain observes, looks very much like the chart of the All Ordinaries Index since 2007 and so may give us a perspective on the wider market as well.
NAB peaked at $44.84 back in late 2007 and fell to its financial crisis nadir in early 2009. It rallied for a few months then mostly traded sideways through 2010, 2011 and the early part of 2012 with a price level of around $27 acting as an upper resistance level.
Then the stock took off and has risen solidly, despite a retracement during the mini slump experienced by world markets in May. Its upward journey has seen NAB break through two significant resistance levels. The first was about $30.42, which represents a 50 per cent retracement on the Fibonacci number series of the fall from its pre-GFC peak to the 2009 lows on the daily chart at $16.01. The low on the monthly chart was slightly higher.
More recently, it has gone through the $33.83 resistance level, which represents a 61.8 per cent Fibonacci retracement. Attainment of that 61.8 per cent retracement level is often accompanied by a pause while a stock price consolidates before moving on. But as this has not happened with NAB, investors must be wondering what the outlook from here is.
Generally, a resistance level is formed at points where the stock has paused in the past. In this case that is likely to be the previous peak of $44.84 as the stock tried twice to go through that level back in 2007 but was unable to do so.
So on that basis, $44.84, a 100 per cent Fibonacci retracement level, is likely to be the next resistance point and the stock could pause there. From a fundamental perspective, NAB is trading on a dividend yield of 5.2 per cent, which is the average for the banking sector. It has returned investors an outstanding 47.2 per cent over the past year, 19.8 per cent annually for three years and 7.8 per cent annually over 10 years.
NAB, which had lagged its competitors mainly due to the poor performance of its UK banking operation, is set to release its full-year results tomorrow.
This column is not investment advice.
The writer owns NAB shares.
Banking on growth