Â A long time ago, late 70-ties, I had the pleasure of having lunch with Walter Wriston in New York; we talked a little about banking (and how truly dumb it realy is). Today I was readingÂ James Grant’s book in which he quotesÂ John Reed, another chairman of FNCB, now CitiGroup (2x?),and tells the reader howÂ susceptible bankers are to the power of suggestion. i.e. groupthink (page 204 Mr Market). I bring these things up simple because there areÂ few animals , other than bankers, who live up to the (undeserved) reputation of Lemmings.Â I used to be a loan officer so I know both the stupidity and the peer pressure first hand.Â Just as the precocious childÂ will, out of sheer boredom, get himself into trouble , soÂ will Â bankers. In fact they do it on a pretty well perfect cyclical sinus-curve of give or take 7 to 9 year duration. If you know this, you would definitely not have bought anything remotely resembling aÂ bank, that includes banks proper like CitigroupÂ (which is actually a motley group of disparite companies under a single umbrella, Travellers ,collected byÂ one of the largest andÂ most over- paid egos on this earth), aswell as things like Country Wide or even General Electric. I have warned about this to no end, to little avail.
Â Â Â Â Now we get to the good part. Those of you that read the Gartman letter will know that he often refers to “the box”.Â This box is nothing more or less than the 50 to 61% Fibonacci, or EW, Â retracement level that one should ALWAYS look for when in doubt,Â and even more so when not. The retracement level is not calculated from ground zero as I have done for convenience; it should be measured in terms of thelast major up-leg in which case we may already be closer to the 61% level! Below is the chart of RY.
Â Â You will notice that today it trades at about $32, at the high it was $61,50Â or somewhere around there. What this means is that we are close to the top of the “box” range. Also you will notice, unfortunately I cannot do this , but you clould draw a straight line through the lows that intersect somewhere around $31+. Technically, which this analysis by the way is definitely not, this may actually be a buy. Options are obviously a safer bet. And, just so there are no misunderstandings, with buy I do not mean Buy &Â Hold as in AIC or Copernican or whatever it is called nowadays. A little patience may well be worth it as I think the line actually runs at around $29.Â The misfortunes of that other royal, RBS , together with a 50/75 beep drop in our bank rate tomorrow may suffice to give that last little push. Ofcourse if they also come out with a 10% note ,as TD did, that would be the better deal at least in fully taxable accounts like RIFs and RRSPs! Happy trading, or should I say banking.?