Four out of five canadian bank stocks forming descending triangles

Sep 3rd, 2010 – Comment

Canadian bank stocks have some challenges to deal with when it comes to moving higher.


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Hi Lou

Your opinion on Canadian bank stocks would be highly appreciated.

Thank you.

Amir

Hi Amir,

 

Thanks for the assignment.  The charts are indicating that Canadian bank stocks have had a good run but  at worse look to be forming continuation patterns to the downtrend that started after the April highs and at best a range bound pattern moving sideways. Lets get to the analysis and see what we can deduce.

 

 

ry

The three year chart for The Royal Bank of Canada (RY TSX) illustrates the end of the uptrend in late April of 2010 and the series of lower highs and lower lows forming a descending triangle. RY is trading below its 50 and 200 day moving averages which would have the astute investor reviewing the rationale for the investment from a capital appreciation perspective. The 3.8% dividend yield speaks for itself.

 

 

 

The six moth chart provides a good view of the current retreat. Note how every advance has ry2met with resistance giving rise to lower highs and lower lows. The MACD does appear to be turning higher but the real question is what will it take to break above the downtrend line?

 

 

 

td

The three year chart  for the Toronto Dominion Bank ( TD TSX) exemplifies a stock that is forming a descending triangle pattern after a vigorous advance. It has been testing support along its 200 day moving average since it came off the April high.

 

 

 

 

td2

The six month chart depicts the support at $65.00 and resistance along the downtrend line. A descending triangle is a continuation pattern that poses a risk that support at $65.00 will eventually not hold. The current dividend yield on the shares is 3.3%

 

 

 

 

cm

The Canadian Imperial Bank of Commerce (CM TSX) is also exhibiting a descending triangle pattern after hitting the highs in April. It has tested support on its 200 day moving average but has met resistance along the downtrend line. There is also resistance at $75.00 that goes back to 2008 that CM has to deal with if its going to make a move above the April high. The dividend yield is 4.7%

 

 

 

 

 

cm2

The six month chart points to a break above the 50 and 200 day moving averages but the greater concern is the resistance along the downtrend line. The last candlestick on the chart is a hanging man and that usually indicates that an advance is running out of steam.Also represented on the chart is the support at $62.00 forming the base of the triangle.

 

 

 

 

 

 

bmo

The Bank of Montreal (BMO TSX) is exhibiting a similar pattern of riding high in April and getting knocked down in May.  BMO is forming a pattern of lower highs and lower lows as it meets resistance along the trend line on the three year chart.

 

 

 

 

 

 

bmo2

The six month chart points to the struggle the stock is facing as it tries to move higher but fails to break above resistance, most recently on the 50 day moving average. Examine the $60.00 level  which at one time provided support and is now forming resistance.

 

 

 

 

 

 

 

BNS

The Bank of Nova Scotia ( BNS TSX) is exhibiting a range bound trading pattern with overhead resistance at $52.50 and support at $47.50. The 52.50 level has been in place for five years so its going to take a lot to move through it. The dividend provides a 3.8% yield.

 

 

 

 

bns2

The six month chart presents the case of a stock that has been testing support along its 200 day moving average and bouncing to resistance at $52.50. BNS as oscillated in the range three time since May of 2010. Investors that caught the ride and got on and off at the right stops would have generated returns over 20%.

 

The charts speak for themselves. Canadian bank stocks have some challenges to deal with when it comes to moving higher. They are providing attractive dividends but not much of a case for capital gains. BNS seems to offer the best opportunity to work a range bound stock for trading profits.

 

MAKE IT A MASSIVE LONG WEEKEND AND HAPPY CAPITALISM!

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