RY has gone right to the extreme of , almost, $86. That is an increase of about 330% since the lows immediately after the Great Recession. Much of this is due to multiple expansion, which itself is due to the low interest rates and the corresponding discounted value. No doubt the increase in real estate values, non inflationary of course, had much to do with it as well. Unless you believe that this will continue, we do not, then you should not continue to own this stock from a trading perspective. The RSI has always been a good indicator and again it has gone into overbought territory twice.
In our previous most recent blog on this stock it was suggested that it could possible go as high as $86. Looking at it more closely now that would appear to be just a little too high. $85 is a more reasonable target.
The stock is making a very nice wedge and there is little room to maneuver left. The RSI, always a good indicator, is starting to move into overbought territory and the MACD has been down for half a year. Fundamentally Yellen is brooding about creating a hot economy, sort of like an incubator while Poloz is lowering his sights once again, this time acknowledging that there might actually be a housing bubble. In the mean time our market is almost back at its previous peak despite the fact that oil is still at half the price it was then and after a rerun of the Nortel movie in the form of Valeant. Caution is the better part of valour, so we would exit on the next tiny move up.
Below is a more refined picture including this morning’s action;
In our May 26, 2015 blog we discussed the possibility of this stock exceeding the old high which was recorded according to some chart providers as $83.30. Today we almost got there and as Yellen is talking again at Jackson Hole this Friday, that may just be enough for a last hurrah. We had expected a wedge diagonal to form but instead we seem to have gotten a simple 5-wave 5th wave (maybe). In the extreme this could even go as high as $86.
RY has been impervious to anything potentially negative, low interest rates or flat yield curve, the collapse of oil, the overextended borrowings by large segments of the Canadian population, the (continued) extreme valuations of housing, the regulatory suffocation environment as in Basel 3, Dodd Frank etc. etc., the recent introduction (but not yet fully implemented ) CRM2 rules for investment dealers and their advisors and so on. Apparently all this is easily offset by quasi monopoly power, the lack of other investments and so on, but perhaps not much longer.
The RSI, at both tops and bottoms has shown its reliability in spades. Also from the lows of Feb. this thing is up almost 40%. A prudent person should sell.
The usual then, Sept. 4, 2015, and now charts;
Generally speaking we have been bearish on the Canadian banks, but occasionally we have nevertheless shown the bullish side as well. Last September we did just that with the Royal Bank by pointing out that the ups and downs of the past year or so might just be part of a large corrective structure despite the fact that the stock could not break out to new highs for about eighteen months. New highs just did not seem to be right but here we are.
So now, with the benefit of hindsight, we have to assume that the analysis back in Sept. was correct. That must have been the elongated a-b-c wave 4 followed by, what certainly looks a lot like a wedge. These normally retrace in full so once wave 5 is done, which could be any moment now, we drop back down to $64 and perhaps a lot lower this time. There is still a little room for a throw-over but the technical indicators are already screaming sell. Particularly the RSI is always very accurate as a timing tool and it needs just a little push up to get overbought. We would sell right here, right now.
Note that the b wave within the larger B wave moves one step to the right making the whole correction about 5 or 6 months longer than first anticipated. I do not have an explanation for why the stock was trading at about $81 in Dec. 2015 and only at $79 in today’s chart. In fact, looking at a G & M chart the high at that time was more like $83.33. To then make a new high we would need more that just a dollar more!