This stock shows nice 5-wave structures but otherwise is just as confusing as most. Any higher and overlap will occur, which is fine if it is a double zig-zag but not if it is to become an initial 5-waves down. The drop was bigger than the other banks but so was the rise. We will wait and see what it does next.
We thought the trek north was over but did allow for a deep rebound. Now that we seem to have double topped and then some , that is no longer possible. Perhaps this bank is just very good at what it does. It has 35 million shares which puts its capitalisation at just over 2 bln. The p/e is just under 10 and the dividend yield is about 1.74% on an EPS of about $6/share. The company was founded in 1977, has almost 700 employees and assets of around 8 bln. Their main business is mortgage lending, taking what the big boys cannot be bothered with without compromising underwriting standards. Of course, in Canada, the last time the housing market got under serious pressure was back in 1989 at which time HCG was barely on the radar screen. Since then it has been blue skies all the time so we simple do not know how this company would hold up under stress, should that occur. From the detailed chart below,
, without being able to assign a proper count other than the one already mentioned, we would still be inclined to step aside at these double-top levels, the RSI and MACD decidedly toppish and the proximity to the $61 Fibo level.
Apart from Canadian Western Bank , HCG is one of the few examples of an equity based financial institution that has successfully navigated the Canadian banking waters. It is the example to emulate for a whole host of financial companies that are trying to extract themselves from previous lives as co-operative or mutual entities. For the moment it is not yet clear that that is desirable considering that in the “great recession”this stock dropped by 60%..
Home Capital Group, an excellent company growing like gangbusters, very profitable and trading at a p/e of about 8%. What is there not to like? The Chart, and this may also apply for similar financial institutions that do not have a chart, simple because they do not operate as a shareholder company.
Looking at the big chart it was either 5 waves up into the high of $60, or it was a B-wave that got the stock up there. Either way the next big move should be to the downside, at least to the trend line at around $25 (see previous blogs). Looking at the more detailed chart a clear 5 waves down occurred mostly in 2011, to be followed by an a-b-c wave 2 that has now lasted 13 months and may not yet be over. The next big move should start soon and take the stock below $41 right away. The important thing to remember is that there is no reason for such a decline. During the great recession this stock lost about 60% of its value for no reason. If it repeats that feat it will drop to about $24 also for no reason, which is in itself a good reason to step aside.
Both these banks are outside the mainstream, one because it is primarily Quebec based and therefore less Anglo so to speak and the other because it chooses to do what the others will not do, that is extend credit without a lien on the first born, mom & pops cosigning and a collateral coverage of at least 3x. Perhaps the resulting charts could better reveal where we are;
In the big picture National Bank probable topped at the first top, in purple. But even if it is the second top, in blue, one more down leg could still be in the cards. So far we still have a good way to go to reach the initial target of about $53 (the B-wave level within the larger B-wave).
Home Capital is behaving a little better in that it is already much closer to the first initial target of about $37. Also it has a far narrower channel adding credibility to the count. A single additional wave down could complete the first move, but this one could already be complete! If wave 3 (in blue) is shortend, waves 3 and 4 in blue would become 3 and 4 in purple and the first 5 down would be complete. All the other banks have equally mixed signals so buy only at the bottom if it occurs close to the b-wave level.