Don’t buy Canadian banks…yet

While it may look tempting to buy a position in the CDN banks, I’d hold off for a while unless you were strictly trying to achieve the dividend yield that these stocks offer.

There are certainly some positives for the sector. Canadian banks, as illustrated by the BMO Equal Wt Bank ETF (ZEB) shows us that the breakdown below Feb’s support line was temporary. It lasted 3 days, then rebounded. This is why I use a minimum 3-day breakout or breakdown rule to quantify such movements. These kind of capitulation selloffs or their evil twin blow off tops happen all the time—and they can deek you out. So the picture is not as entirely bearish as that breakdown originally suggested. Case in point, February’s support at $20.90 seems to be holding after that momentary breakdown. That’s at least some sign of positive development for the sector.

However …. despite February’s support line holding, the bottom line is that ZEB is still making lower highs and lows on the daily chart. Money flow (not shown) is getting a bit better, and momentum has turned a bit more positive. But we can’t become bullish until we witness an upside break over $21.60 lasting for more than 3 days. Such a break would take out the last peak – at that point I might suspect a break in the current downtrend, and the potential for some upside to materialize.
Banks are supposed to turn seasonally attractive in the coming weeks. We at ValueTrend have them on our radar screen for a potential play over the winter. But we won’t make a move until we see the downtrend broken. I’d suggest you wait for the same development, should you be watching this sector.