australian banks to play a catch up 1839772016

Since 09 November 2016 (post U.S. presidential election), global banking/financials stocks have recorded stellar performances due to the “Trumponomics” theme where market is expecting global interest rates to inch higher due to President-elect Donald Trump’s proposed fiscal plans. Higher interest rates or a steeper yield curve will tend to benefit banks via a higher interest margin income derived from loans and fixed income trading activities but provided that provisions for delinquent loans remain stable.

As seen on the performance chart below, U.S. banks are leading the pack (up 16.44% till 07 Dec 2016) and the “Big 4 Aussie” banks (ANZ, NAB, CBA & WBC) are lagging behind globally which only recorded a rally of 9.7% on average but still managed to beat the benchmark ASX 200.

Interestingly, three of the big Australian banks (NAB, WBC & CBA) have raised interest rates last week on some of their respective mortgage products despite RBA’s policy interest rate remain unchanged at 1.5% (high probability of a further cut next year due to a disappointing Q3 GDP for Australia). On the short to medium-term, the latest upward revision on Aussie mortgage interest rates is likely to be positive for Australian banks. From a technical analysis perspective, we have selected Westpac (WBC) for a potential “catch-up” bullish rotation play on a medium-term horizon (1 to 3 weeks). 

Westpac Banking Corp (ASX: WBC) – Bullish breakout from a year-long base

(Click to enlarge chart)

Key elements

• Westpac has managed to stage a bullish breakout from a year-long “rounding bottom” basing formation in place since August 2015. The exit target of the bullish breakout stands at 36.90 which also confluences with a Fibonacci cluster (0.764% retracement of the broad based decline from 06 April 2016 high of 39.75 to 27 June 2016 low of 27.57 low + 2.00 projection from to 27 June 2016 low of 27.57 low) (see weekly chart).
• Medium-term upside momentum remains intact as indicated by the daily RSI oscillator which remains positive above its support. In addition, the longer-term weekly RSI oscillator still has room to manoeuvre to the upside before reaching an extreme overbought level.
• The bullish breakout in price action is being accompanied by a pickup in volume.
• The pull-back support of the “rounding bottom” bullish breakout rests at 31.65.

Conclusion

Technical elements are now advocating for further potential medium-term (1 to 3 weeks) upside movement towards the 34.90 resistance with medium-term pivotal support at 30.88. A break above 36.90 is likely to open up scope for a further rally to target 36.90 next.

On the other hand, failure to hold above the 30.88 pivotal support may invalidate the preferred bullish bias to see a choppy decline to retest the major swing low of 27 June 2016 at 27.95.

Chart is from eSignal

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