Banks to bounce, then time to hedge

by Michael Gable

The banks have been sold off very heavily since peaking last month. The major cause is the falling $A where overseas investors are looking to bank profits before they become eroded by the currency translation. With the heavily oversold condition on the daily chart, and the yield support, I would expect the banks to stage a small rally here, retracing approximately 50% of the recent falls. Looking at WBC as an example, that takes it up towards $32. From there I would expect it to remain under pressure. It could either then drift back towards $29 or a worst case scenario for me would see the stock down near $26.
 
If you are looking to lighten off on banks, then the upcoming bounce could be your opportunity. However, if we want to hang on but protect the downside, then the bounce will give investors an opportunity to write a covered call to protect the downside. Alternatively, if you are underweight banks, you can use these levels as a buying opportunity and then write a call options against the shares once they have rallied.




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Disclaimer: Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.