This will be the 49th blog on the Royal. Some have been very prescient, others a little less so, but all in all you would have done very well following our advice. The stock passed the 1bln. Canadian dollar milestone the other day which seems to be a rather opportune moment in time to do another one.

Canadian Banks are beholding to, and in bed with, the different levels of government to a degree that both sides would prefer we do not know. The “bailouts” in Canada were in many ways proportional to those in the US., specifically the guarantees of the CMHC are  proportional, if not larger, than those provided by Fannie, Freddie etc. except that these were provided after the Great Recession. But we will look only at the EW, not the fundamentals. The wedge, that for a while was a distinct possibility is dead. We have gone too far for that to be right after exceeding $65 or so. The next stop is the trend line, where we are now, give or take a dollar or two. Two possibilities present themselves. The , by far, most plausible is that of a large B-wave from the lows of ‘09. The wave structure, even the minute one of the c of B as shown in the smaller chart, is near perfect having all the required subdivisions, alternation and so on. A second, much less credible possibility is that of a simple 5th wave (in blue). The resolution will be about the same in both cases, that is a sharp drop towards a level below the low of the A wave ($25), or a drop in a large degree wave 2 towards the 4th wave of previous degree (also at $25). Take your pick.

We have pointed out earlier that this stock can be traded more or less exclusively on the value of the RSI. It too points towards a sell.

Back in February of this year the stock reached $65. That was the highest level we could come up with using a very bullish diagonal or wedge structure. This one is so big that we have serious doubts about the correctness. A simple B-wave from the $25 fits just as well and would even allow for a slightly higher price as the top has no significance in that situation. Either way, a diagonal of unbelievable proportions or a simple B-wave, the stock is done for all intents and purposes. It took seven months to add a single dollar!  In both counts the “target” is well below present levels, perhaps as low as $15. But this is Canada and this is the Royal, like potatoes to the Irish the Royal is the main dish for the Canadian investment industry . No self respecting investor would want to get caught without owning at least a bit of it, particularly in uncertain times, so it will take a while but once the process does start it should accelerate rapidly.

Then , Oct. 23, 2012 and now charts as usual;

Back in October of last year we volunteered the idea of an enormous “diagonal” as the sole bullish count that we could possible put on RY stock, but did recommend selling it at about $60. The unthinkable has happened and the stock has made another , new high, the only bank stock to do so (excluding HCG). Then we calculated a high of roughly $65 for this pattern should it become reality. Today’s high was $64.90, see below;

This should, give or take, complete the last leg in the diagonal (if that is what it is) and should unfold as a 3-wave affaire as it has. The RSI is , of course, already exploding to the upside into overbought territory for the last three months. The MACD is not confirming for more than a year now. Who could have thought that this stock could be up more than 50% in 14 months. Now it should definitely be sold.

See our most recent updates for this stock;

As we recently pointed out, this stock should be sold when it reaches levels around $60. Now that the stock has completed, or is about to, a five wave sequence there is all the more reason to do so. Add to that the RSI that is now above the 70 overbought level, and a MACD that is doing nothing, why wait?

So what makes stocks go to the edge, time and time again. For RY the answer is simple that your broker cannot go wrong recommending RY (or almost any other Canadian bank). The reason is that these banks are all part of an oligopoly which in practice means that if they do do something stupid all they need to do is jack up your NSF fee and cut seniors off from free banking. This can always be done with impunity as the first mover becomes the price setter , and all others duly follow suite after a wait period sufficiently long to keep up decorum and the fallacy that there is competition. The other factor is that it is always safe to recommend a bank, especially the Royal. When, as a broker you have absolutely no idea what to say to your client and yet you have to bring home the bacon, a lot of bacon, you simple recommend this bank. In uncertain times like right now, it could be argued that these banks are a “safe haven” investment. All this explains why this stock gains, in a single day, almost as much as 10-year Canada’s do in a full year. It is still a sell.