BNS

BNS, Bank of Nova Scotia.

Hamilton

BNS banks

Just a quick reminder that this is the long-term picture for BNS, the high was roughly at $60 in Jan. of this year. Here is where we are today;

bns oct 2011 bns s oct 2011

That $60 was pretty well the top, it reached $61+ in February, a nice Fibo number. From the lows (chart on the left) the stock traced out a well recognizable B-wave that marginally exceeded the previous top in 2008. The two separate legs up are relatively clear and roughly travel the same vertical distance.

From the highs the pattern is not perfectly clear, but if we assume a wave 1 type 2 wedge (don’t ask!) at the top, we could have a 1-2-3-4 wave 5 still to go. The stock moves up and down 7 times without going anywhere. This best “fits” with a wave 4. Also the initial target, the b-wave level in the larger B-wave  (arguable at $42.50) has not yet been reached.

Banks have recently come under greater scrutiny that normal. On BNN there were one or two speakers that opined that Canadian banks were over valued and should be avoided, something unheard of in Canada. Perhaps the notion that banking is not going to be that easy with Basel 3, the Volcker rule , Dodd-Frank, and the 99% occupy Wall/ Bay or whatever street, a flat yield curve and whatever else. The idea that European bondholders, read banks, should shoulder a larger part of the losses may weigh on banking worldwide.

If this is a wave 4 triangle we should start moving down soon. The alternative is that wave 1 and 2 are complete in which case we will go down even faster and further in wave 3.

The Canadian Banks.

Hamilton

First a chart of just about every single one of them;

RY banks BNS banks

cm banks bmo banks

na banks hcg banks

cwb banks  LB banks

TD 2011

From top to bottom we have RY, which made a new high and then dropped 10% or so, BNS that not only made a new high but stayed up there, CM (CIBC) that seems to be groping in the dark, BMO, middle of the road, NA National, HCG Home Capital Group (see comments elsewhere) the best of the lot and , ironically, the only sub-prime lender, CWB Canadian Western Bank they finance anything that belches diesel smoke and is yellow, the Laurentian Bank and last the TD.

Notice that despite some , sometimes large, deviations most have done more or les the same thing. All had 5 waves up, then a big drop, and then an attempt to a new high. Some failed others did not. The TD is in the middle of the pack with a simple double top.

All are sells! These banks operate as a cartel, with intended or unintended collusion all over the place, with rotating price setting etc. etc. This is the same all over the world but Canada does it best. They have a huge lobby in Ottawa and usually get what they want (with the notable exception of further mergers). If they want private wealth management to stay that way, as opposed to broadening the CPP, they will get that.

There is one big problem with this. Ultimately ,with globalization , the system will have to be opened to competition when Canadians tire of paying twice as much as the next guy. They already have just about everything. In the mid eighties they took over mortgage lending from the trust companies and now control about 80% of that. A few years later they took over all the  major investment dealers and now control much of that. Gradually the independent mutual fund firms are also taken over and now they control the bulk of that. They have made sizeable gains in insurance and are gaining momentum. There is precious little left other than leasing and travel. So where is the growth going to come from?

    At the same time new rules  (Basel 3, Volcker, Capital requirements etc.etc.) and regulations are crimping their ability to move beyond the straight and narrow. Not that they ever did much of that but even so they will be doing less of it in the future.  Soon, hopefully, they will lose the absolutely enormous benefit bestowed upon them by ridiculously low rates. This is a mature industry, and the next 20 years are not likely to resemble the last. The only thing they still have going for them is the perception that they are safe blue chips. Any broker who is not sure what to do buys bank stock and this artificially keeps a bid under the stocks, but from the charts it is abundantly clear that this can change very fast as in 2008, maybe it will again.

   From a buy low sell high standpoint , none of the above banks are a buy today.