Should You Buy National Australia Bank At This Share Price?

What happened to the NAB share price?

Is it all over for big banks such as National Australia Bank [ASX:NAB]? Investors have had a great run with the big banks in the last few years. They have benefited from a low rate environment and relaxed regulatory standards.

However, that is about to change going forward. Rates will likely go up following a moderate tightening cycle initiated by the Federal Reserve. The overheated Australian property market has also caught the attention of the regulators. They will continue to temper property price growth by targeting bank lending.

This is not good news for big banks. So what should investors do next?

Is this the end of the cycle?

It hasn’t been hard to outperform long-hold investors when it comes to NAB. ‘Cyclical investors’ is a term I use to describe those who invest in the cyclicality of stocks.

Cycles seem to be a clean and simple idea. When the cycle is going up, you buy. When it comes down, you sell. Seems simple. Except it’s very hard to spot the cycles. And even harder to time your move.

For NAB, the last profitable large scale cycle started in 2012 and ended in 2014. The first quarter of 2015 saw a short spur. A cyclical strategy would have picked up a small part of that uptick.

If I used a short-only strategy, I would have only made a large profit during the GFC. If you have to choose between a long-only and a short-only strategy, definitely pick long-only.

What should you do with NAB shares now?

From a cyclicality point of view, the long signal has disappeared. So we may again be staying in a period of low return for NAB. However, the short signal has kicked in. There could be opportunities for 10% gains, provided that you close the position at the right time.

Ken Wangdong

Emerging Market Analyst, New Frontier Investor

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