Technicals - Major banks in overbought territory - Reason for caution

Angela Mangan

QMG Pty Ltd

With the exception of WBC, the other three major banks are located in overbought territory on a RSI basis which is reason for caution relating to the sustainability of the rally. Between 20 - 22 December, major bank stocks reached technical buy signal target levels , completing technical trades. (The buy signals were most recently generated in September and October). The major banks are currently rated as technical holds. The RSI is not a timing or turning point indicator - it flags when overbought situations occur, and when momentum has moved to an extreme, but it does not provide an indication of when this overbought situation is likely to correct. A technical top formation is the requirement for a technical sell signal to be triggered. There are currently no signs of technical top formations emerging on the major banks. The CBA chart below highlights it is located at the same overbought levels that occurred in late 2013, mid-2014 and early 2015 - which is reason for caution relating to the sustainability of the rally. ANZ and NAB are similarly positioned.

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Angela Mangan
Technical Analyst
QMG Pty Ltd

Angela has over 30 years experience in the technical analysis field. She provides technical analysis coverage of major Australian and global stocks / key markets, including provision of a bespoke technical service to wholesale clients.


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