Canadian Banks at Inflection Point? – March 18, 2017

Canadian Banks at Inflection Point?

While the TSX is building a Head and Shoulders top, the Canadian Banks appear to be at an inflection point. Why is this important? Because the Canadian Banks could be the straw that breaks the camels back.

Below is a two hour chart of the TSX. The right shoulder has now made a second consecutive lower high, which is very concerning. The 15400 level is an important area for the chart to find support. A failure to close above 15400, and more importantly a failure to close above the March 14th low of 15370 would form a series of lower highs and lower lows putting the TSX into a downtrend.

TSX Composite Index

This comes at a time when the Canadian Banks face increased scrutiny from the country’s financial watchdog for improper sales practices and concerns of an overheated housing market.

Below are the two hour charts of Canada’s 5 major banks. I’ve highlighted major support and resistance levels on each chart which represents junctures where the forces of supply and demand meet. Support is the price level at which demand is thought to be strong enough to prevent the price from declining further and resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further.

I find it very intriguing that the quarterly options expiration date arrived at a time when the price action for each bank is either testing or has just fallen below major support. The quarterly option expiration caused the volume spike highlighted on each chart. Failure to hold or regain these major support/resistance levels could be detrimental for the TSX.

Bank of Montreal (TSX:BMO)
Canadian Imperial Bank Of Commerce (TSX:CM)
The Bank of Nova Scotia (TSX:BNS)
Royal Bank of Canada (TSX:RY)
Toronto-Dominion Bank (TSX:TD)

Below is a chart of the S&P/TSX Capped Financial Services Index with money flow indicators. Failure to hold support at 290 could accelerate selling and push the TSX into a downtrend. Define your risk.

S&P/TSX Capped Financial Services Index $SPTFS

Have a great day! ๐Ÿ™‚

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