Comparing charts: US. vs. CDN banks

Canadian banks

Our banks are looking technically strong as they finish their earnings season. However, I will not be buying back into the Canadian banking group just yet (truthfully, I’m not buying anything just yet—see https://www.valuetrend.ca/?p=2415) . There are a few reasons behind this decision

> First, the sector is overbought, from a traditional momentum standpoint. Short termed indicator stochastics is beginning to hook down.

>More importantly, all three of our momentum oscillators shown this week are displaying divergences in strength vs. the sector. Note the lower levels on stochastics (short termed indicator), RSI (mid-term) and MACD (longer termed momentum). All three failed to put in higher levels when our proxy for the group, the BMO Bank ETF (ZEB-T) reached new highs.

>Lastly, we are entering into a seasonal period where Canadian banks often retract a bit.

My view on the CDN banks: hold if you already own them, but consider waiting if you wish to initiate new positions. I think they will present a better entry point in the coming weeks.

US banks- down but not out (yet)

US banks have retraced strongly of late – quite the opposite of their Canadian counterparts. News of big-buck legal penalties hitting stalwarts like JP Morgan hasn’t helped the sector. Interestingly, though, the sector is still on its mid-termed trendline. Further, we’re seeing oversold momentum indicators on the sector chart ($BKX), although no “hook” has occurred to suggest a rally just yet.

What to do?

My conclusion, from a near termed perspective on these two sectors is this: Canadian banks are likely due for an overbought pullback. The damage may not be too severe, thus my suggestion to hold positions if you own them already. But it may be worth the wait to buy on a likely correction. The charts are suggesting an overbought condition at this time. The US banks, on the other hand, may be nearing an oversold bounce. How they manage to hold onto any gains after any initial upside will tell the tale for mid-long termed investors. If the trendline holds, current pricing may be an interesting buying opportunity.