Here’s a monthly chart of the BMO CDN bank equally weighted index. Nice uptrend, I must say. However, the sector is not without its harrowing moments. For example, the period between mid-2014 and early 2016 was a lousy time to be in the banks. Sure, the trend returned, but you had to wonder if that 18 months or so could have been better spent elsewhere….
Investors might be wondering about the recent meandering by stocks in the sector. As you will note on the monthly chart, the banks are on trend. But they really did arch off of the trendline after the 2014-2016 pullback was finished. The 10 month SMA (which is fairly close to the 200 day SMA) did not show a period of crazy overbought levels despite this off-trendline rally from the 2016 low point. I look at 10% over the 200 day SMA as the first signs of an overbought market. When its way over that level, I consider it outright bearish—as I noted here.
So the recent pullback or “pause” in the banks is likely just a removal of the overdone movement off of that trendline. As you will note on the daily chart below, the technical indicators are largely bullish. Rising moneyflow (top and bottom panes), bullish but not overbought momentum indicators (stochastics, RSI, MACD) and a solid comparable relative strength vs. the TSX 300 suggest that the sector might be ok until the spring. Seasonal patterns are typically bullish for financials until June. I have two Canadian banks in the Equity Platform here at ValueTrend – and I intend to hold them until at least the spring.