BNS, Bank of Nova Scotia

December 5, 2011December 5, 2011 Hamilton

Late last week BNS reported annual earnings of $5.27 bln., an increase of 21% over the previous year. The same day Royal reported an annual gain of $4.85 bln. down from the previous year’s $5.22 bln. (about –7%). To be fair they had a large single charge for abandoning certain US activities that did not work out that well. BNS, on the other hand, had expanded it’s international network in Uruguay that did contribute to the banks international earnings. So, logically, BNS is down and RY is up. Here are the charts;

RY, as expected, has been moving up even in advance of the reported earnings and is now up almost $7 from the lows of $43+ and may even move another dollar or two even if we would not press our luck too much. The BNS is going the other way and is now within pennies of it’s lows of $48+ (both stocks come from identical highs of $61+, so the Royal had a little catching up to do) Vital statistics (from Bigchart) have the Royal earning a dividend yield of 4.37% and having a p/e of 12.348. BNS’ numbers are 4.27% and 10.9276

If you are a big player and have a broker that does these things, a market-neutral spread trade would be appropriate here ; sell RY and buy BNS in equal amounts and wait. For more normal investors just buy BNS. It’s chart has a pretty distinct triangle in it, even if one can argue where exactly the thing starts or ends and typically the stock will trade back to the level of the apex ($52), but more often than not to the highest point ($54). The best result (on the spread) would be obtained if both stocks traded back up to their 200 day moving averages, for BNS at $55 and RY at $53 ( a gain of $3 to $4)

BNS may, repeat may, be in an expanding wedge pattern which would explain the overlap. It requires one more low below $48 and should then trade back up to it’s origins of $53.5. This should happen rather rapidly. Here is a picture.

XFN , XLF, RY and other Canadian Banks.

December 4, 2011 Hamilton

XFN and the XLF are, of course, the Canadian capped financial ETF and the S&P’s counterpart for the US. All but one of the Canadian banks have reported their latest quarter earnings and for banks worldwide, they got a pretty good boost from the coordinated global central bank commitment to ease swap pricing even if it is not clear what will come out of that. In any case good time to review the banks. To start the XFN and XLF;

The message from these virtually identical charts is that a 5 wave down sequence was complete and some sort of complex a-b-c correction has been going on for the past month or two and is not yet complete. Basically both could attempt to get back to the 200 day moving average (the red line) but they certainly do not have to go that far!

How this fits with the Royal is clear from the chart;

A move to about $50 to $53 seems to be in the cards. As the buy was recommended at about $43.50 one would theoretically be up $5 already. It was not always possible to get a good fill as the stock gapped twice in the last week. Whatever, a 10% gain is in the cards and I would suggest to take it.

The Royal and the others, except BMO that still has to report, demonstrated their dependence on the nickel and dime business which is little more than an oligopoly rent. Generally, despite new records, particularly in insurance, the old mainstays of proprietary trading and M&A, together with new issuance, were disappointing. Overall the banks are overvalued.

Hang Seng, TSX, XFN and RY

November 27, 2011 Hamilton

Superficially, all four, the Hang Seng, TSE, Capped Financial ETF and the Royal, have done roughly the same thing, but if you drill down a bit there are some differences. For instance, the Hang Seng starts tanking a full six months before the others topping in Nov. of ‘09. The others wait till March or even April of ‘10. From hi to low the HSI loses the most at about 34%, RY 30% and the TSX 24%. The XFN only manages about 20% The path for all four follows a neat EW pattern, 1-2-3-4-5, except that the wave 2 is very messy and so is the 4-5. In fact it is not even clear if a 5 wave sequence is indeed complete. The only one of the four that, so far at least, adheres strictly to a clean channel is the HSI. In all cases we cannot be completely sure that the recent rebound is a wave 2 ,or part of that, or a wave 4, and consequently we do not know if the most recent down leg was a wave b, or wave 5 of 1 , or wave 1 of 3. Fortunately b-waves are followed by c, a 4 by 5 and a 1 by 2. On average the Royal should be a screaming buy anywhere between here and $41, at least for a trade. (see previous blog).

The Banks again.

November 25, 2011November 25, 2011 Hamilton

Rather than take an individual bank, I have used the TSX capped financial index in this Yahoo chart. I am not entirely happy with the count but , at the very least it is plausible. If correct most of the Canadian banks (and other financials) should, barring any idiosyncratic anomalies, follow this basic pattern as they are, after all, joined at the hip and listen to the same drummer.

BNS, Scotiabank, follows the pattern to a t . The whole thing could be compressed to make a triangle out of all the up and down action over the past 4 months and the conclusion would be about the same. A 5th wave is still required and seems to be targeting a level of about $46 (which is still high relative to the “logical” level of $41 (as explained in previous blogs).

We missed the $5 up and down trade by being too flatfooted and indecisive. But now there is so much more clarity. The stock could trade towards $40 after which there should be about a $10 rebound. Essentially you can buy the stock even now and still make a good return!

SunLife, has been a little annoying. Like the energizer bunny it just keeps going and going. It is now down an unusual eight dollars in one go. But on the positive side the RSI is as low as ever and a turn should occur soon. Even Manulife has stopped going down the last few days.

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