Canadian Banks in a Rut

Includes: BMO, BNS, DIA, QQQ, RY, SPY, TD
by: Market Blog

By David Parkinson

On Tuesday, we talked with Standard Life Investments portfolio manager Raquel Castiel about some of the fundamental factors surrounding Canadian bank stocks. Today, we look at the landscape for the banking sector from a technical standpoint, courtesy of National Bank Financial technical analyst Dennis Mark.

In a research note issued late Tuesday, Mr. Mark said that for now, the S&P/TSX capped financials sub-index is stuck in a technical trading range - between upside resistance at 180 and downside support at 163, its 200-day moving average. (It's at 174 midday Wednesday.)

With the financials index trading about 8% above the 200-day average (it has been above this key technical indicator since last May), the sector still looks quite adequately priced, and that's keeping the upside in check.

"A neutral trend will likely be maintained until the rising 200-day moving average catches up with the TSX financials index, before [there is] a resolution to the stalemate," Mr. Mark wrote.

In the meantime, though, Mr. Mark says there are some trading opportunities within the sector.

He suggests investors look at buying Royal Bank (NYSE:RY) and Bank of Montreal (NYSE:BMO), "which are technically the strongest banks," and selling Bank of Nova Scotia (NYSE:BNS) and Toronto-Dominion Banks (NYSE:TD), which are the technical laggards.

He noted that Bank of Montreal, his top-rated Canadian bank based on technicals, is the only bank stock trading above its 50-day moving average.

TD, on the other hand, is his lowest-ranked stock, as its charts have been deteriorating recently, Mr. Mark said the stock is vulnerable to fall through its near-term support level at $63.60 (it's at $64.21 in midday trading Wednesday) and head toward a test of the next major support at $61, its 200-day moving average.

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