Fat Tail Investment Research's chief trader Murray Dawes used the firm's weekly closing bell with co-host Charlie Orman to flag what he called the most uncomfortable setup in the Big Four bank charts in years, just as the ASX 200 ended a brutal week down 1.6% with year-to-date gains of just 0.3%.
"When a chart's in the midpoint of a range, that is the point of maximum indecision," Dawes said, describing an ASX that has spent the better part of a year trapped in the same band. "The bulls are uncomfortable, the bears are uncomfortable. Pretty much everyone's unhappy when it's in the middle of the range."
The banks, he argued, are the heart of that indecision. Dawes pointed to long-running monthly charts on Westpac, NAB and ANZ that show prices retesting their pre-financial-crisis 2007 highs after a multi-year rally — and starting to give way.
"I don't really like classical technical analysis often, but there's one thing I do keep an eye on," Dawes told viewers. "Double tops, and big double tops — especially ones that are years apart — when you have a huge rally that comes to retest a major high and it spikes through. Everyone gets bullish and then the music stops, and it's like that sort of a double top technically can be a really good sign of a big sell-off."
NAB's chart, in his read, was the most concerning. "Even worse, this is getting that sense of that reversal, the big double top coming in," he said, noting the stock had pushed roughly 25% above its 2007 peak before sellers stepped in and triggered a monthly sell pivot.
Fundamentals, Dawes argued, are starting to line up with the charts. "The brokers have been negative on them for too long," he said. "But they are still seeing slowing of revenue growth, higher bad debts, and interest rates still rising. The yield curve — they make their money on a nice steep yield curve. Is that flattening off?"
Orman picked up the thread on Iran-war exposure. "Each one of them flagged in their latest report the Middle East conflict as a material uncertainty, with NAB being explicit and saying there's a US$300 million forward-looking provision against it," he said. Brent had whipsawed inside a US$15 range during the week, trading near US$101 a barrel after touching US$116 days earlier.
Dawes said the passive-fund mechanics that have inflated bank weightings on the way up could also amplify any reversal. "It's this self-reinforcing loop that just keeps getting bigger and bigger," he said. "What happens when that music stops? Does that mean that the reversal is worse? Because as it shrinks, the ETFs have to sell to lower their exposure."
Looming over the technicals, Orman argued, is Treasurer Jim Chalmers's signalled changes to the capital gains tax discount due in next week's federal budget. With the RBA also lifting the cash rate to 4.35% on Tuesday, Dawes said leveraged investors with multiple properties may be the next forced sellers. He cited Mornington Peninsula and Tampa, Florida, as templates for what happens when carrying costs collide with stretched balance sheets — "selling them at 30 to 50% under, because the numbers don't add up."
Dawes was careful not to call a top outright. "Market can do anything it wants, but I'm leaning bearish, and it needs to go above here really to make me change my view," he said, referring to the ASX's 10- and 20-week moving averages, both of which the index has now slipped beneath. The setup, he argued, was the first time in years he had looked across the Big Four and felt nervous on all of them at once.