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Chart Analysis: Bank earnings breakdown in Canada

CMC Markets

Trading in Canadian bank stocks this week around their earnings reports remind us that it’s all about expectations. Bank of Nova Scotia reported earnings per share of $1.41 which was in-line with expectations and a 3.1% dividend increase. The shares’ however, are falling today which seems odd unless you look at the chart and consider how much the shares have moved up over the last six months, pricing in high street expectations that the results were unable to satisfy, which sparked today’s round of profit-taking. Even before today’s news technical indicators were showing signs that the uptrend was tiring including a negative RSI divergence and a lower high for the shares last week, indicating the balance between bulls and bears has been shifting in favour of the bears. Currently the shares are testing their 50-day average near $72.50 where a breakdown would signal the start of a potentially deeper correction. Initial support may appear near $71.50 but the $67.00 to $68.00 range could be tested over time where the 200-day average plus two Fibonacci retracements cluster. So far, Royal Bank and Scotiabank have tumbled following earnings reports. This suggests that CIBC or TD Bank may also be active and potentially vulnerable when they report on Thursday.

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