Canadian Western Bank Stocks

June 14, 2024No Comments

 

Hello and welcome once again to the Smart Money Dumb Money Show. Kind of an interesting topic today I wanted to talk to you about what happens and what do you do when an unusual spike to the upside or [00:00:30] draw down on a stock that you own happens. What do you do if an unexpected event pushes your stock up or down exponentially in one day or just a few days? And it’s really a perplexing situation for all of us, including Craig and I, who are professionals in the business. And I’m going to tell you that every professional runs across this because [00:01:00] one day you’re going to wake up when you own a stock that reports a bad earnings report or comes out with some bad news or conversely comes out with completely unexpected, good news. And I’ve had both of them happen. And the reason I’m recording this video today is because I had one of those good things happen, but I can’t take credit for, aren’t we great?

(01:26):
Aren’t we so smart that we picked this stock before it [00:01:30] had a massive surge in one day, which is today the 12th of June? I’m going to show you the stock in a second, but I want to tell you, yes, of course, we bought this particular stock with the idea that we thought it had value. We thought it had a technical setup for a base and we thought we were trying to buy near the bottom of the base and maybe someday it’ll break out. So, as you know, if you follow my work, I tend to work in legs. So, we say, okay, let’s buy 2% [00:02:00] within the base and then let’s see if it breaks out and buy another 2%, et cetera. So, we had done our initial 2% and then we held it, and it really wasn’t breaking out of the base. In fact, it was actually drifting lower over the month of June, the past 12 days because everything was so focused on Nvidia and all the tech stocks like Apple’s report and all that sort of stuff.

(02:22):
So, it wasn’t making much money for us. In fact, it was kind of losing money. And suddenly we woke up this morning to good news. So, I want [00:02:30] to show you this stock. I want to then talk about other instances where you wake up and either really good news or really bad news hits you on a holding and really discuss how do you deal with this? And the answer I’m going to tell you ahead of time is you don’t know. So, Craig and I, when this particular company reported something in the stock spiked, we [00:03:00] spent an hour on the phone, I was out of my office and trying to decide, well, should we just take the money and run because we just made a ridiculous amount of money. We’re up literally like 60% in a day on the stock, or do we hold on because in certain circumstances the stock might keep moving.
Canadian Western Bank Stocks

(03:23):
So, let’s look at the stocks and I will sort of discuss this as we go on. So, I’m sharing screen [00:03:30] and what we have in front of us is Canadian Western Bank (CWB on the market), and today is June 12th. And you’re probably seeing this about a week after I recorded it. And what you’re looking at on the right-hand side of the page is this enormous spike. So somewhere from around $24 a share to $41 a share. So that’s a pretty monster move. As I just mentioned a minute ago, all in one day, this is a weekly chart, but this is actually all today and it’s because Canadian Western Bank and National Bank announced that they want to [00:04:00] merge. In fact, national wants to buy Canadian Western Bank. We were buying Canadian National Bank because we thought it was cheap. Nevertheless, it had been trending down. We bought it in here somewhere where there was some support, it was breaking down and I was actually giving it a couple of more weeks and would have sold it.

(04:19):
I’m just being completely honest here. We like the company, but ‘price be price’ and you have to pay attention to price first and foremost. [00:04:30] So I use a three-day to three-week rule. We’re trying to give it three weeks and then all of a sudden this happened. So good news, we don’t have to sell it now, but the question is do we hold it? Well, apparently the price that these guys have agreed on National Bank and Canadian Western is somewhere in the $50 range. Okay? So theoretically the stock’s trading at 42, we could make another eight to 10 bucks maybe more, and we’ll see where it actually happens. But they apparently in the [00:05:00] news they’re saying they’re discussing in the low fifties as far as a bio price, well, I could get another 10 bucks, which is still another 25% on the stock. So, it could be huge, but you know how things go and particularly with banks, it may not fall through.

(05:16):
So, I want to mention all this because this has happened before, and as I said, Craig and I discussed this, we decided we’re going to hold onto it for now looking at the circumstances and going, gee, in [00:05:30] the past you’ve seen, what was it, Scotia? I think it was, I can’t remember the bank. I’m sorry. It might’ve been RBC that bought HSBC. And that went through successfully. So, the government allowed it. So, you never know, and maybe this is going to happen, but I can say we don’t know. And whenever you run across this kind of situation, I’m just telling you, there are no technicals anymore. There are no fundamentals anymore. It’s really there’s news. Any of the news [00:06:00] is real or will happen or it won’t. And you have to try to decide if you have enough potential to see this happen. And as I said, because of the HSBC deal that happened a while ago, we’re giving it the benefit of the doubt, but we really don’t know.

(06:21):
So, this is going to be a theme you’ll see repeated a couple of times. So different times we see different companies do these spikes [00:06:30] to the upside or the downside. Let’s take a look at another one. So back, do you guys remember Covid? No. Covid. What was that? So, during Covid, nobody really had anything to do. People sat around at home, they were all locked down, and a lot of would-be stock traders appeared out of the woodwork, which by the way, most of these people have disappeared. But at the time, suddenly everybody became a stock expert because shortly after Covid, [00:07:00] some of the more technology orientated stocks started doing very well. Remember Zoom, what I’m using this platform right here, it took off because everybody was working indoors and you could do Zoom meetings without having to drive over to their building Peloton, which was kind of a joke, but indoor exercise machines, that stock took off and then fell like a brick.

(07:23):
But another thing that was happening was named the ‘meme stocks’ and the granddaddy of [00:07:30] them all was GameStop, and some of you will remember this. GameStop was kind of an old school video game company and videos, and you could, I guess they were selling these old school games when everything started going online. And of course, the stock was just in the doldrum. So, it was a very shorted stock at the time. A lot of the institutions out there were shorting it because it wasn’t making any money. They were a losing proposition. So, what happened is a [00:08:00] bunch of, I guess would be traders got online on a chat group called Reddit. Some of you guys are familiar with that. And they started forming a group that would try to buy these stocks that are heavily shorted mass and force the institutions that were shorting the stocks to cover their shorts, which would cause buying.

(08:26):
Of course, when you cover a short position, you have to buy the stock. And [00:08:30] so it was, you could almost call it a way of manipulating the market, but at the time anyways, it was not illegal. So that was what happened with GameStop. You can see it sort of had been doing a little bit better, but really not a lot better after most of 2019 and 20. And all of a sudden, the short squeeze happened where these people on Reddit all agreed at the same time to start buying this stock mass. And of course, the institutions had to cover, [00:09:00] and of course the stock went ballistic. It literally went from around three or four bucks to in the $120 range, which is up here, and this is all within literally weeks. And then it fell just as hard. And since then, it’s been kind of a dog’s breakfast.

(09:16):
Two lessons here, you couldn’t have predicted that you could have jumped in if you were a momentum trader, but once the excitement was over, you can see what happened. It both fell, recovered [00:09:30] and then fell over time. So, there’s an example where there was no real meat behind it. I mean, unlike maybe a bank merger I was just talking about, and that bank merger may not go through, so that’s the risk. But in this case, it was purely like they say, a meme, just people kind of messing with the institutions. It was kind of a revenge of the little guy or something at the time. So, there’s a situation where when we could look back and say, well, there was a spike that didn’t last. Okay, so I’m going to cover [00:10:00] today. So, I’m going to cover Meta next. So, this is going back to early 22, and where I’ve circled on the chart here is where the stock fell on earnings

(10:15):
Well, we all know that the tech stocks and Meta slash Facebook have actually been pretty good investments for those who like tech stocks. [00:10:30] So one could have said, well, it was a good stock leading up to that, and maybe one bad’s earnings report is not such a big deal, so should we be buying it? So, this is again, an unexpected drop, and this was in the news so you could look it up. That Meta fell hard early 22. So, the question was, is this an opportunity? And obviously it wasn’t. I mean, we can see in hindsight that even if you had sold here after the earnings report drop, it went down to 220 bucks. Well, it ended up [00:11:00] that around 90 bucks eventually. There are no absolutes in investing, but just because the stock had been a well-attended tech stock prior to that bad energy report doesn’t mean it’s instantly going to recover.

(11:17):
And it was just a spike to the downside and therefore we should jump in. That was obviously not the case. It took quite a while for this stock to drop and bottom and base and break out. So, there’s a good example of where [00:11:30] it didn’t work out. Okay, another example. I love this one because I’ve always been a German car fan, and this is Volkswagen. And Volkswagen was basically, it was starting to top and in early around it was in 2008 [00:12:00] that the stock started to see a little bit of duress. Now you don’t really see that in here, but it had stopped rising so much. But then what happened was before the stock fell too much, you can see that there was this giant spike.

(12:22):
And what the spike was is that a number of institutions, again, now this is not the same as the Reddit [00:12:30] group when they started covering or buying to squeeze the shorts, but a number of institutions were shorting Volkswagen at this time. There were a lot of questions about their viability as a company. And then basically Porsche, the company Porsche, which makes sports cars, and of course SUVs these days as well. Porsche announced good results in that they had invested heavily in Volkswagen stock. So, the shorts started getting covered. [00:13:00] So you can see that here. So, there was a short squeeze and the stock spiked very rapidly. I mean literally from in the twenties to pushing a hundred bucks. So, all within an extremely short period of time. And that’s because of the short covering, not because of any particularly positive news coming out. Eventually, the shorts would’ve been proven correct, and you can see that here.

Canadian Wester Bank Stocks Spike

(13:24):
But a spike of news caused the market to rally hard [00:13:30] before the realities behind this company at the time settled in and caused a fairly rapid decline down to around six bucks from one point a hundred bucks. So, this is another example where, say in my opening example of the bank merger, well, if the merger doesn’t go through, I can tell you just like the spike we just saw in the Canadian Western Bank stock, if that merger does not go through, you’re going to see this, it’s going to fall right [00:14:00] back to where it was. So, this is the question again, Craig and I are asking about Canadian Western Bank, will it actually happen? Because if it doesn’t, it will be down so quickly you won’t be able to move on it. And that’s exactly what happened with Volkswagen here. Okay? It moves so quickly and then it reverses so quickly.

(14:18):
So, there’s an example of one of those interesting spikes in time and Amazon. So, I’m circling this because [00:14:30] Amazon had been kind of trading sideways through much of 2021, and then it came out with some crummy earnings reports. Yeah, this would’ve been by coming into early January. And then they came out with a winning earnings report. You can see here about mid-January and that the stock spiked here fell a bit but carried on [00:15:00] with that spike further. This was a moment in time where a trader could have made money, but fundamentally, the story didn’t last. That earnings report was good enough to push the market up in the short term. But as you can see, shortly after that, the company really didn’t perform as well as the market wanted. And despite that, it had spiked from about 130 [00:15:30] odd dollars to $170. It ended up falling to around $85 over the coming year.

(15:37):
So sometimes these rapid movements up end up being head fakes. So, I always caution you, and I caution myself again, when we’re dealing with this bank merger potential, then I have to be cautious, and you have to be cautious. Then you hear exciting news or depressing news. We have [00:16:00] to really put on our thinking caps as much as we can. But also understand at the end of the day, whenever you have any of these unusual circumstances where you get these massive spikes up and down based on some piece of news, and there’s a certain amount of uncertainty surrounding that piece of news, you have to decide, just like Clint Eastwood said, well, punk, do you feel lucky? And so, I asked myself that every once in a while. Well, punk, Keith, do you feel lucky? And [00:16:30] in most cases, I don’t rely on luck, and so I’m going to apply as much logic as I can because charts go out the window at this point.

(16:40):
So do fundamentals. There’s nothing you can really evaluate beyond historical circumstances where maybe something like this has happened. So sometimes, for example, you get a bad earnings report, but that’s just an anomaly. And I remember that happened a number of years ago with CN Rail, [00:17:00] which Craig and I held at the time, and there were some blockages of the trains by protestors of whatever, of some sort during the winter, and eventually the protesters stopped blocking the trains and things went on. So, they had a really lousy corner a quarter, and I’m sorry, I don’t recall the year, but Craig and I actually bought more because we said, this is a non-recurring thing. There’s not going to be protestors on these rail tracks every day for the next decade. So, we knew this was an event and [00:17:30] we used it as an opportunity, but the stock had plummeted on that news.

(17:35):
So sometimes you have to use a little bit of logic, even though the charts and the fundamentals may or may not help you, you really don’t know what’s going to happen. And I guess I’m concluding this video by saying, I’m sure I wasn’t much help in being able to offer you absolute rules to use when these kinds of events happen. But if I may offer, my only piece of advice is [00:18:00] if you don’t feel lucky, like Clint Eastwood said, just sell it. If you do feel that there’s maybe enough logic without getting emotionally involved or hoping and wishing it would do what you want it to do. If you can come up with a plan such as Craig and I said like, look, the minute that any news comes out with this bank merger that says it’s maybe only a 50 50 that it’ll happen, we’re going to sell it, and probably the stock will fall that day.

(18:27):
But that’s [00:18:30] just the way it goes. So you can sell on the news as they say, sell on news, or you can hold if you think that news makes sense, that it’s likely to be either continuingly bad or continually good. You have to make that decision as best you can, but there’s no hard and fast rules. Anyways, I did this video just for a little fun because I woke up to the news on this bank merger and I thought you guys would be interested to hear how us in the business suffer [00:19:00] through the same stuff that’s unknown that you guys do. Most of the stuff we do is very quantitative and very rule-based, as you probably know, by reading my books and taking my courses and reading the blogs and listening to these videos. But sometimes there ain’t no rules, all bets are off. You just flip the coin, let it land and see what you think. Once day you are happy with Canadian Western Bank stocks, and one day you are not. Anyways, you guys have a great day and I’ll see you next week.

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