HCG

HCG , Home Capital Group update

Hamilton

The then, June 29, 2015, and now charts as usual;

HCG june 29 2015hcg feb 14 2016

At the time the stock was around $42 or so. Recently it got to $23 or another $19. From the peak the total damage is close to the 61.8% magic Fibo retracement and consequently a bit of a bounce could be in the cards, perhaps in a minor wave 4 of 5 of 1. After that a bigger bounce which may even close the gap and then further down in wave c of this a-b-c correction which should reach the lowest point of the triangle. Reverse engineering suggest that closing the gap is attainable assuming c will equal a.

All the banks have similar patterns, mostly B-waves without triangles, but all are well on their way. This one and CWB are the furthest down and CM, Commerce , oddly enough the least. There is no reason to change the EW count at this time so we remain bearish on the group, including the insurers.

HCG update, very strong buy for a trade !

Hamilton

hcg july 14 2015

HCG got to our target of $32 in just a day, faster than we expected. It is a buy here in our opinion. Volumes were down and the company guided lower, there was some insider trading for a Mickey Mouse amount and the only big event was a downgrade by RBC DS to a target of $39. Why anyone would bother to read such “analysis” is beyond me. Nine investment dealers together have an average target of $51.88, this is after the downgrades. BNS is still at $51.

For the reader I included some of they key metrics of this company. The dividend yield is almost 3% but the P/E is at an amazingly low 7X, about 1/2 of that of the banking industry as a whole. They are small enough to grow in such ways as they choose and large enough to enjoy the benefits of scale. Management is pretty smart and does not suffer from the myopic outlook on banking that is so common among the oligopolists. We would put this stock on our “Conviction List”  if we had one, a list that is.

HCG , update

Hamilton

Then, 2nd of March, and now charts as usual;

hcg mar 3 2015HCG july 13 2015

A little over four months ago we warned that an initial 5 wave sequence down would be negated if “overlap” were to occur. It did as the a-b-c climbed deep into the territory of wave 1. That changed the outlook to a double zig-zag a-b-c X a-b-c. Assuming for the sake of argument that that is correct, then very often, but not always, the second a-b-c develops in a symmetric way, however mirrored. I have stylized how that would look by placing a mirror, represented by the black line, between the two a-b-c’s. The second a-b-c would take us to $32 which, by the way, brings us close to the lower long-term trend line. We are presently where the little blue arrow is!  We will see if this happens and in this way.

Below is the log-term chart , posted on the 29th last month, for your convenience;

HCG june 29 2015

Canadian Banks.

Hamilton

So now that we have a prototype how does this fit with the Canadian Banks? First a bit more about B-waves. They can be regular, or irregular which simple means that they climb above the starting point of the A wave. Their are no hard and fast rules but I believe it is more or less accepted that irregular B-waves should not exceed the top of the A-wave by more than about 30 t0 35%. Here is an example, CWB, Canadian Western Bank, they pride themselves on financing anything that is yellow (think CAT) and belches diesel smoke;

cwb june 29 2015

You can clearly see the B-wave. This one just happens to be at the edge of the 30 to 35% or so limit, but in every other respect it is perfectly clear. Target $8 or lower. If that sounds ridiculous than keep in mind that it last traded there just 10 years ago.

An error crept into the chart, the 4th of previous degree line should be lower, at $6!

The next two big banks that have the clearest B-waves are CIBC, CM and BMO;

CM june 29 2015bmo june 29 2015

Commerce is of particular interest as it managed to double top, the last big bank to do so much to the surprise of many that work there and thought they would never see the day. In any event, nice B-waves and terrible targets. BNS and National Bank have B-waves that are borderline but still acceptable given the channels they are in;

bns june 29 2015Na june 29 2015

Royal appears to follow the triangle scenario a little better and TD is unclear, perhaps because the Canada Trust part changed the company to such an extent that it simple cannot be looked at on a continues basis;

ry june 29 2015td june 29 2015

Royal sticks to it’s channel quite nicely. It would fit either of the two scenarios equally well, in fact it probably fallows the path of JP Morgan the best despite the fact that it has outperformed it by a long shot. TD must fall into the B-wave scenario given the otherwise not acceptable overlap. Putting it all together, including the insurance companies we have the XFN, the TSX capped financial ETF;

XFN june 29 2015

There can be no question that this is a B-wave, AND that it is complete. This chart has less time on it as the ETF did not exist prior to 2002. Fortunately, we can still see where the wave 4 of previous degree, that is on the way up, is. $11 and that is where we should go under EW rules and guidelines.

We have left out HCG, Home Capital Group. It is by far the best performer and fundamentally runs a sound business model. It does not fit easily in either scenario but with a little imagination we can make the triangle – distorted though it may seem to be – work quite well. The top is even perfectly above the apex! Here is that chart;

HCG june 29 2015

The conclusion must be that you do not want to be in the financials, period. By the way, this negative outlook is in no way predicated on what happens in Greece. If the timing seems to coincide it would be just another one of those fallacies, after this, therefore because of this.