ASX Shares A Closer Look at the Big 4

@Alex Straker , it is fantastic that you share this information, I'm sure we all appreciate it, but for the novices can you please explain in more simple terms. My limited understanding is telling me that you think the banks could go as low as ANZ $24.23, CBA $60.034, NAB $20.860 and WBC $24.021, is that correct?

Do you think they will take a long time to recover?

Yes, I do understand this is not advice, just your personal opinion.

 

My advise..don't look at your stock prices. Go out enjoy life. Only time to look at anything is in Dec and July when the dividends hit your account (NAB, ANZ, WBC) and for CBA it's Sep and March

Reason: Continuously, looking at prices makes you do things you will regret in future. Best to remove emotion if you want to succeed at stock investing.

Cheers,
Oracle.

 

Emotional is removed, however slowly accumulating. I’m content looking at the sea of red that I currently have, knowing that dividends are the game plan. All that aside I would still like more understanding and that’s why I’m asking questions.

 

@skater Hey, how are you? Great question, and please forgive me I have many 'industry lingo' conversations in my work every day and tend to forget there are a mixture of understanding levels here, my apologies.

Let me do my best to explain some foundations....

The thing we go in search of in charts are support and resistance zones plus patterns and timing areas. Those price areas you asked about (green lines) are support and considered as an opportunity to accumulate at a sharp price So if price goes there, identifying support helps find the ideal pricing to accumulate and put the odds in our favour of a market reversal close to that zone. You have seen how accurate this can be from my original post which forecast price and time zones for a bank support zone many months in advance. It's a case of putting together many clues.....understanding geometric and harmonic patterns are also key (especially understanding of time cycles) and often tell us with excellent accuracy what to expect next in the market.

Due to possible wave 2 end (3 of the 4 banks), we are at such a potential support zone now with the banks, however given yesterdays trade in world markets (SPY/DAXX/FTSE all smashed!!) I suspect conditions are going to be bearish for a bit longer (see forecast posted in World Indices... thread 7th September) and the mid years lows will get taken out. So if this happens, the longer term support zones to be aware of are those green lines/prices you mentioned.

What causes support and resistance? Market Auction Theory (see books by Jim Dalton & Peter Steidlmayer) is built on demand and supply. These are the underlying cause of support and resistance areas on the chart. When demand and supply interact as two forces for a period of time, price will of course move around. Overall, if we simply measured and vertically plotted how many times each price occurred (or the volume of trade at each price, a slightly different plot) - price will form a statistical bell curve around what we call a value area - this is where price and/or volume has traded the most number of times and therefore seems to represent a fair market price for the instrument.

At the edges of the bell curve are where price has traded the least. Imagine a moving market where price has fallen well below the value area and there is sudden demand. Price will not spend very long at these 'edges' and this is where demand or supply may overwhelm the other side of the transaction and cause a more rapid 'rejection' of that price. Demand and supply forces can also rapidly develop at high volume nodes (by definition high volume trade is often institutional buying or selling)

So in other words both the low volume nodes (narrowest points) and high volume nodes (widest points) of our bell curve are going to act as reliable support and resistance on a price chart. There are a great many techniques and methods (not just a bell curve) used to identify and forecast support and resistance.

Here's a bell curve based on 'time@price' for XJO starting from the GFC low in March 2009. Purple line is the index price that has occurred the most times since post GFC recovery (5,208). The Olive coloured zone is the value area Approximately 68% or all trade post GFC has occurred within this value area (4,497 - 5,918). The green coloured zone is 1 standard deviation from the purple line, red is 2 standard deviations.

XJO


No advice

 

If anyone can share, how the banks normally pay out dividends? Do they base on their profit or asx share price?

i.e for the 3 banks their share prices say in the $30 for the last 3 years and they normally paid $2 per share p.a. What happens if their market share price is $25 and they maintain their yearly profit similar to the last 3 years

Do they normally adjust their dividends to their debts/profits/shares? TIA

 

Generally dividends are your share of the company profit, this however is no always the case. If you look at the pay out ratio it generally sheds light on where the dividends are coming from and the amount retained to reinvest vs payed out as your share of company profits.
My novice understanding, I’m sure someone can give a far better explination!

Also share price is in my opinion what people are shilling to pay for a company and Mayr not always represent the true value of a company as in times of easy credit and euphoria things may be over valued and the reverse in times of panic, however the dividends may be a better representation of the worth and performance of a company hence why dividends do not flactuate as much as share prices.
Just me thinking out loud, I’m relatively new to this whole share thing hehe

 

I'll have a go at this one. Please bare in mind that I am no shares guru. The share price will go up & down according to market sentiment. When you log into ASX & it gives the dividend yield, this will go up & down also. So taking NAB for instance, it WAS maybe 6.95% yield, or thereabouts, but now the share price has dropped, the yield has increased to around 7.4%. This is not set in stone, and can change at any time, unless the next lot of dividends has been reported.

Looking at the history of dividend of NAB they have been 0.99c bi-annually, so appear to be rather stable.

Absolutely positively NO ADVICE.

 

Thankyou so much for trying to simplify it for me......but I still feel like I'm a dummy.

With the bell curve especially, I'm very confused. You have something on the side of the graph, which I understand, but the actual graph bears no resemblance.

When you talk about support, I think you mean the figure that the price hovers around most of the time? Is that correct? So, a share might hover around, say $20ish, but when it goes down (or up) & stablises, the new support figure will be a different amount?

As you can see, this is a large learning curve for me, but I think I'm getting better, just being invested somewhat & playing around the edges.

 

Let me try to save @Alex Straker fingers for a moment, and at the same time see how wrong I am! @oracle don’t stress, this is fascinating but I’m not a stock picker

So the bell curve is a statistical thing. When you have say 1,000ppl buy a stock over a month and you plot the prices they pay on a horizontal graph, you find only one or two bought at very low or very high price. The rest will congregate towards an “average/median” somewhere in the middle. He is suggesting this is the true value of the stock. You’ll melt if you read Wikipedia so here is a pic:


The graph obviously shows the XJO climbing, when the XJO value reaches in line with the pink bar, then the XJO is at a level it has most frequently been over the time period shown. Suggesting it’s around it’s true market value at those times, and above or below at other times. The further the coloured bit sticks out to the right, the more frequently XJO has landed at that value. You can probably infer things like how likely it’ll drop below these frequent values and other things if you are an expert.

I think by support this means a level where people start buying it again after it has been dropping. Simplistic psychology might be that there are heaps of ppl waiting to buy CBA if it drops to $55, it’d be a bargain in their eyes. So when it starts to crash, it hits $55 and starts to climb again as all the buyers jump in. Then it might drop a second time and it is “supported” again by these people propping it back up. It can’t get below $55. What gets hairy is when it drops and the $55 bargain hunters give up (or already bought their fill) and then it goes below $55, everyone freaks out and sells it down rapidly. Until it finds a new support level where it MUST be an awesome time to buy and it finally edges up and up again.

Cool graph @Alex Straker!

 

@Pleep well said! That is Market Auction Theory in a layman's nutshell!

@skater I can see you want to understand this better....probably a good idea to look up the book reference I provided if you haven't done so yet Jim Dalton's book "Mind Over Markets" is the single best resource if you want to understand the concept of Market Auction Theory thoroughly.

Ok let me see if I can help you see the resemblance between the candles and the bell curve. Just like a property auction, the share market is really just a big collection of daily auctions on all the listed companies.

The candles represent price action of the market auction over many weeks. In the chart above, imagine if we physically 'pushed' all of the those candles horizontally over to the left side of the chart and forced all the left edges to line up - we would end up with the bell curve display. The widest segments means these are where price has been transacted at the most (high volume node - more candles) and the narrow segments are where price has been transacted at the least (low volume node - fewer candles).

It's just an alternative way to view a price movement scale and essentially shows how many times each price level has been 'visited' during the course of market movement and gives us the ability to pick a period of time in the market and see where high and low volume nodes plus the value area occur for that period.

This bell curve based on price is known as a market profile and when based on volume of trade it is know as a volume profile. It is fundamental to understanding order flow in the market and how the forces of demand and supply interact.

Now, regarding the question of 'support & resistance' - both low volume nodes and high volume nodes are considered areas for support & resistance however they will tend to produce different types of reactions by price. A low volume node will most often cause what is known as 'rejection' by price. Why - a low volume node tends to occur at the 'edges' of the curve and therefore is at an 'unfair' price.

If a share ABC is undervalued, bargain hunters will flood in and tend to quickly push the price back closer to fair value. Now imagine that the share ABC has been bought heavily and the price has gone back to up fair value but for some reason the buyers are over excited about it and keep bidding it up. Exactly the same happens in reverse if price is overvalued, buyers will dry up and sellers will begin to drop price. Naturally price will tend to revert to fair value again. The bell curve represents this auction process very neatly and helps us to understand the statistically based fair value, undervalued and overvalued areas of the market. It also gives us a understanding of WHY support and resistance is effective in reversing price.

The reason market profile is so important that it is the easiest way to grasp the concept of demand and supply which is of course always the underlying cause of support and resistance. It also allows for statistical analysis of price movement and from this we can derive certain probabilities to shift the odds in our favour. It is also one of many tools we can use to identify support and resistance, there are a huge amount of others including simple trend lines, geometric lines, harmonic divisions and pattern based techniques, statistical limits, etc.

Another very interesting use of market profile is to plot smaller periods in succession as multiple profiles. We can then see if each successive value area is moving higher or lower as time goes on. The is s a far more reliable indication of trend than price movement is!! Reason why is we are seeing the trend of an 'agreed value' without the overvalued and undervalued prices interfering. Here is a 30 minute chart showing this concept - price is moving lower while value area is simultaneously moving higher. The new trend breakout then proves that value area was correct.

 

That's a good read Alex,and as always -positions taken early in any trend offer the greatest rewards..

 

@willair indeed it's true sir!

Exactly why I have spent over 12,000 hours learning and developing technical analysis skills and am always very focussed on accurately find the end of retracement patterns. Needless to say learning these skills properly (lots of trashy sources of info around but few genuine ones) is one of the most lucrative personal education pursuits you could ever engage in as an investor. As I have said here before I see it as part of my purpose here is to open eyes to some new possibilities - I know almost the whole world preaches that 'you can't time the market' but frankly that is BS. That is what they teach financial planners to say in banking culture to make sure clients don't hesitate to buy the products on the day. I believe and hope what I have posted here over quite a lengthy period now has smashed that myth to most peoples satisfaction.

If I could re-write that saying it would be along the lines of...."you can't time the market to perfection, however you can use a combination of common sense and TA skills to dramatically shift the odds in your favour of buying at sharp prices."

End of retracement = resumption of the trend Simple concept......lifetime of work to master.

 

Alex this is a good quote..
There only one crystal ball that reflects the future of business and economics ...That crystal ball is the stock market..

 

Love it! And the crystal ball that predicts the stock market is......credit/bond markets When credit markets start to tighten up on lending, time is almost up in the in the stock market bull run.

 

I think this is a very important point. Do you have to time the market to perfection to be profitable?

I don't think so. I mainly invest in residential property and I suck at timing the market to perfection. However, I am great at making profitable deals and that's all that matters to me.

 

I appreciate your posts and charts. They seem like voodoo magic with lines drawn all over them, urging the market towards your predictions. It’s fascinating, I’m sure I’d be sucked in to its world, but can’t devote that time at this stage of my life.
I think passive index investing is a safe way for those who cannot or don’t have time to devote to such skills.

 

The challenge with the banks is the extent to which the housing downturn is already in the share price

 

absolutely agree and great stuff @Alex Straker

I have always maintained that whilst timing the market is impossible for most - knowing where you are in the larger cycles is actually fairly easy which gives you an indication at the least. Knowing how interest rates are behaving globally, fixed interest, bonds - major share markets and commodities etc. If you were given a major lump sum of funds right now, you would have to be aware that we are 10 years into a major bull market in the most relevant stock market in the world. Tread wearily right now. To me, all the major investment vehicles are correlated one way or another. Money/funds can only move between them all (simplistic way to look at a very complex beast). Trying to find the canaries in the coal mine is the go - and what you provide with your TA seems utterly invaluable to achieving this.

Just after a couple of your thoughts Alex:
1. As per your market whisper update from last week, 5700 level(ish) is a key level, and with xjo futures now point towards 5735 for today - what is the next key level should this be breached? Spy looks on track to close below 286 for the month - and if the next key level down is around 240 there may still be some major correction left in this one locally.

2. Gold. It seems gold is just meandering sideways (ie last week or so trading days SPY is down 5%, gold sideways). Major daily sell offs and rallies are not really effecting gold as historically you would think it would. Is gold still the 'safe haven' it once was, or are the underlying fundamentals in gold pointing towards less bearishness than we think?

 

If you know about it, it is in.

It is the unknown knowns (to the layperson) that are the key.

 

But perhaps a 5% property decline is in the share price. What if it becomes 50%?