BMO, XFN

December 29, 2016December 29, 2016 Hamilton

Banks, all of them and not just the Bank of Montreal, constitute a large sector of the investible Canadian market. In Canada, when you are not sure what to do, which for the past seven or so years must be just about all the time, you buy a bank. Not any bank, but one of the big five as the small ones usually turn much earlier as some already have, a few years ago, see HCG and CWB.

As always there is some ambiguity in the EW counts but the alternative is pretty draconian. Theoretically BMO could drop back to the level of the 4th wave of previous degree, say at $20. The same holds for the capped financials. Ergo it is time to lighten up or even sell the whole lot.

Below are charts of HCG and CWB. They peaked quite a while ago and are precariously holding on to recent corrective gains. After that they should continue down.

Canadian Banks.

June 29, 2015June 30, 2015 Hamilton

So now that we have a prototype how does this fit with the Canadian Banks? First a bit more about B-waves. They can be regular, or irregular which simple means that they climb above the starting point of the A wave. Their are no hard and fast rules but I believe it is more or less accepted that irregular B-waves should not exceed the top of the A-wave by more than about 30 t0 35%. Here is an example, CWB, Canadian Western Bank, they pride themselves on financing anything that is yellow (think CAT) and belches diesel smoke;

You can clearly see the B-wave. This one just happens to be at the edge of the 30 to 35% or so limit, but in every other respect it is perfectly clear. Target $8 or lower. If that sounds ridiculous than keep in mind that it last traded there just 10 years ago.

An error crept into the chart, the 4th of previous degree line should be lower, at $6!

The next two big banks that have the clearest B-waves are CIBC, CM and BMO;

Commerce is of particular interest as it managed to double top, the last big bank to do so much to the surprise of many that work there and thought they would never see the day. In any event, nice B-waves and terrible targets. BNS and National Bank have B-waves that are borderline but still acceptable given the channels they are in;

Royal appears to follow the triangle scenario a little better and TD is unclear, perhaps because the Canada Trust part changed the company to such an extent that it simple cannot be looked at on a continues basis;

Royal sticks to it’s channel quite nicely. It would fit either of the two scenarios equally well, in fact it probably fallows the path of JP Morgan the best despite the fact that it has outperformed it by a long shot. TD must fall into the B-wave scenario given the otherwise not acceptable overlap. Putting it all together, including the insurance companies we have the XFN, the TSX capped financial ETF;

There can be no question that this is a B-wave, AND that it is complete. This chart has less time on it as the ETF did not exist prior to 2002. Fortunately, we can still see where the wave 4 of previous degree, that is on the way up, is. $11 and that is where we should go under EW rules and guidelines.

We have left out HCG, Home Capital Group. It is by far the best performer and fundamentally runs a sound business model. It does not fit easily in either scenario but with a little imagination we can make the triangle – distorted though it may seem to be – work quite well. The top is even perfectly above the apex! Here is that chart;

The conclusion must be that you do not want to be in the financials, period. By the way, this negative outlook is in no way predicated on what happens in Greece. If the timing seems to coincide it would be just another one of those fallacies, after this, therefore because of this.

BMO and BBD.B

February 11, 2014February 11, 2014 Hamilton

Two stocks among others that tell us to be careful in assuming that the next move is down. Without looking at anything more than just the past half year the EW signature for both the Bank of Montreal and Bombardier are decidedly bullish. What it means is that there is a possibility that this will drag on another few months if Janet Yellin is able to pull a live rabbit from a hat. Alternatively perhaps Quebec is going to succeed from Canada after all.

The Canadian Banks.

January 29, 2011January 29, 2011 Hamilton

First a chart of just about every single one of them;

From top to bottom we have RY, which made a new high and then dropped 10% or so, BNS that not only made a new high but stayed up there, CM (CIBC) that seems to be groping in the dark, BMO, middle of the road, NA National, HCG Home Capital Group (see comments elsewhere) the best of the lot and , ironically, the only sub-prime lender, CWB Canadian Western Bank they finance anything that belches diesel smoke and is yellow, the Laurentian Bank and last the TD.

Notice that despite some , sometimes large, deviations most have done more or les the same thing. All had 5 waves up, then a big drop, and then an attempt to a new high. Some failed others did not. The TD is in the middle of the pack with a simple double top.

All are sells! These banks operate as a cartel, with intended or unintended collusion all over the place, with rotating price setting etc. etc. This is the same all over the world but Canada does it best. They have a huge lobby in Ottawa and usually get what they want (with the notable exception of further mergers). If they want private wealth management to stay that way, as opposed to broadening the CPP, they will get that.

There is one big problem with this. Ultimately ,with globalization , the system will have to be opened to competition when Canadians tire of paying twice as much as the next guy. They already have just about everything. In the mid eighties they took over mortgage lending from the trust companies and now control about 80% of that. A few years later they took over all the major investment dealers and now control much of that. Gradually the independent mutual fund firms are also taken over and now they control the bulk of that. They have made sizeable gains in insurance and are gaining momentum. There is precious little left other than leasing and travel. So where is the growth going to come from?

At the same time new rules (Basel 3, Volcker, Capital requirements etc.etc.) and regulations are crimping their ability to move beyond the straight and narrow. Not that they ever did much of that but even so they will be doing less of it in the future. Soon, hopefully, they will lose the absolutely enormous benefit bestowed upon them by ridiculously low rates. This is a mature industry, and the next 20 years are not likely to resemble the last. The only thing they still have going for them is the perception that they are safe blue chips. Any broker who is not sure what to do buys bank stock and this artificially keeps a bid under the stocks, but from the charts it is abundantly clear that this can change very fast as in 2008, maybe it will again.

From a buy low sell high standpoint , none of the above banks are a buy today.

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