US vs. Canadian Banks cage-match.

March 27, 20233 Comments

I’ll start this blog by noting that our “Ask us Anything” questions submittal is officially closed. We’ll be posting a few blogs with your answers – beginning later this week. Thanks for the questions. Wow–lots of them! Today, we’ll talk about North American Banks. Specifically, I’d like to pit the longer termed patterns in  the US bank index,  vs the Canadian bank index. Who wins this cage-match?

US banks

I’ve posted the DJ US Bank index chart below, which gives us plenty of historic data – including the last banking crises, which was in 2008-2009. Drawing a trendline back to that crises bottom, we can see that we may be witnessing a crack in the trend. Note the horizontal purple line marking a support zone back to 2018 – and the longer termed trendline – are breaking simultaneously. However, also note that the spike below that longer trendline in 2020 was short lived. This suggests that we don’t rush to a conclusion that the US banking section is doomed, just yet.

I’d like you to note that the recent weakness in the banks has been primarily driven, as I had suggested in recent blogs, by the regionals – not as much by the larger capped US banks. Note the chart below. the black line is the DJ Regional Bank index, vs the red line is the DJ broad bank index. The bottom pane is a comparative relative strength line–big drop by the regionals insofar as relative performance vs. the broader index.

Seasonal patterns suggest weakness coming into the spring for the sector. US banks see their best months in the fall to early winter period. For this reason, we should pay extra attention to the above noted trendline break.

 

 

Canadian banks

We can’t view the same level of historic data for Canadian banks as we do with the US side, given a lack of indices (at least that I could spot on stockcharts.com). So…We’re using the BMO equal weight ETF chart as a decent substitute.  The C-banks are holding above a trendline going back to 2010. They are also holding  their neartermed (since early 2021) support level – as seen via the horizontal purple line. If neartermed support breaks – we might suspect a move down to the trendline.  That point seems to intersect near an old resistance level on this ETF in the mid-high $20’s. Note that I have not posted the moving averages on these longer termed charts. I’m trying to keep us focused on the trend in a pure manner.

You can see that there’s a bit of a similarity in the seasonal patterns between US and C-banks – per the Equity clock chart below. Canadian banks via the ZEB units tend perform relatively unimpressively over the coming months historically. Again, the real juice happens in the fall and early winter (to January).

Conclusion

It ain’t over ’til the fat lady sings for the US or Canadian banking sectors. We aren’t buying them in our equity models.  However–If I were to buy into the sector, it would be in the Canadian banks, and it would likely be after witnessing proof that neartermed support can hold. It wouldn’t hurt to keep the seasonal patterns in mind too. Best to buy after the summer, if history repeats. For now, its just something to watch, as far as we are concerned.

3 Comments

  • Thanks for this comparison. The short term chart for ZEB has looked tempting a couple times with the latest on Friday with the hammer candle and indicators turning up today. It had the same look with no follow through the Mar 13. This is a good little refresher/reminder for me to look at the big picture before getting caught up in the daily candles charts…thanks.

    Reply
  • Hi Keith. I was watching Larry Berman on BNN today and he was comparing the VIX and MOVE indicies and the fact they are showing a considerable divergence with each other. I would love a blog post with your opinion on stocks vs bonds and what that potential index divergence could mean in the near term if you are interested. Thanks

    Reply
  • Informative overview… and timely.

    I was thinking about getting into ZWB & ZWK (covered-call bank etfs), but will likely just step back and watch how seasonality plays out towards late-summer.

    Focus is back on Energy. To add or not to add…
    Also watching your Emerging Market suggestion from earlier this year.

    Reply

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