Somebody asked me to cover the CDN banks on this blog—so here’s my take on that sector. I’ll refer to the BMO equal weight bank ETF (ZEB-T) for simplicity. It should be noted that some banks within that index, such as Laurentian (LB) and Canadian Western (CWB) differ greatly in technical profile to the profiles of the big six (RY, TD, BNS, BMO, NA, CM). Nonetheless, I’ll cover the sector using the ZEB shares, given the dominance of those six stocks in that index.
On the weekly chart above, we can see that there are some troubling developments on this ETF. First, we have a violation of my trend-following rules: That is, the last high and last low were recently taken out. Next, we can see a “death cross” via the 50 day MA moving down through the 200 day MA. Keep in mind that I don’t assign a whole lot of significance to “death cross” or “golden cross” movements – but they are followed by some, which may put some negative pressure on the sector. More importantly, the market moved below the 200 day MA (red line) and has remained below for 2 weeks. The market has also been below the last low, representing technical support, for 2 weeks. If a move back above former technical support at around $22.25 doesn’t happen by the end of this week, it may be a sign of further downside for ZEB.
The daily chart above shows us that moneyflow is declining in the nearterm (top pane). Long termed cumulative moneyflow (bottom pane) is relatively flat, although struggling through some volatility. Interestingly, RSI is diverging positively, but MACD is trending down—mixed signals here. Stochastics, RSI, MACD are all crossing up from short termed oversold conditions. Seasonality is not favorable for CDN banks at this time.
Conclusion: A break above $22.25 in the nearterm would be positive for the CDN banks – but it had better happen soon. A failure to do so will target the next level of support on the charts between $20- $21. Welcome to the danger zone.
Keith on BNN
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I have a small position in ZUB which I bought around $21.50. Would you suggest averaging down at the current price of about $19.32. Thanks.
John–all I can tell you is that we still like it–it just moved back into its consolidation zone–disappointing that the breakout didn’t last, but we are thinking that may still happen before spring.
Microsoft had disappointing earnings. Would you still continue to hold Microsoft? Do you still have a high target on the stock? Would you consider adding to it if you did not hold a big position? Thanks.
John–we still own it–obviously we didn’t expect a disappointing forward report, which is why the stock is down (its recent quarter was actually within consensus).
My fundamental guy doesn’t view the stock as a sell. Technically it just broke the 200 day MA by about $1.50. But this is first-day over-reaction time–and why I use my 3-bar rule. In the case of a longer termed hold like this stock, I will wait 3 weeks to see if it stays low. If so, I will likely sell–but for now, we are in wait and see mode. Not sure if I would add to positions–but not a sell from this point of view.