The banks are bouncing back! We plot NAB (black bars) and CBA (blue bars) on a daily chart. Of course over the long-term those two stocks are highly correlated, but on short-term basis there are discrepancies that may make them more or less attractive for trading purpose.
First, the recent lows posted on January 23 at $24.03 for CBA (point A) and at $16.68 for NAB (point C) do not have the same significance on their own historical price action. For CBA, it was the lowest since 2003 whether for NAB it was a low that had not been posted since 1997.
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However between their historical highs of November 2007 and those recent lows, CBA lost 61% of its value. NAB lost 63%. The spread between the two charts remains almost the same over the time: it means that both of them rise and decline at a very similar pace.
With a technical approach, what are therefore the clues to choose one of these stocks rather the other one for trading purpose?
For instance, have a look at the price action since the beginning of the year. During the month of February, it has been a bullish period for CBA that jumped from $26.45 to $29.80. During the same period, NAB fell a bit further down from $19 to $17.88. As a result, CBA has already bounced back significantly as the price action posted an obvious higher low (point B), which is typically a pattern that signals here a trend reversal and a new positive development. It is confirmed by the higher highs also posted in 2009 (points D and E).
Conversely, the price action of NAB posted a lower low (point D), which is typically a pattern that signals a continuation of the bearish trend. This is confirmed by the lower highs also posted in 2009.
Both of them have now been rebounding for a whole week. In this scenario, for trading purpose, we would suggest that NAB has the better rebound potential as it has been a bit more oversold than CBA. For investing purpose, probably that CBA would be more attractive as the long-term configuration looks stronger.
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