With the markets digesting rate cuts, recent moves in bond and income markets have clearly introduced a new flavor to investors. Major and regional banks in the U.S. have been favored for some time, including Goldman Sachs (GS), JP Morgan (JPM), and Bank of New York Mellon (BK), which are highlighted in the Green zone of the SIA S&P 100 Index Report, with Morgan Stanley (MS) not far below. On the SIA S&P Small & Mid Cap Report, you'll find many more, including numerous regional players, smaller brokerages, and market makers. However, in Canada, the SIA TSX 60 Index Report shows that insurance companies tend to dominate the Favored Green Zone, with only National Bank of Canada (NA.TO) enjoying this enhanced money flow.
In light of Bank of Nova Scotia's new report indicating a bullish outlook on Canadian bank stocks post-earnings, let's turn our focus to this Canadian multinational financial services company. Turning to our main coach, the relative strength in the SIA Matrix Position Chart reveals that Bank of Nova Scotia continues to languish deep in the Unfavored Red Zone of the SIA S&P/TSX 60 Index Report, where it has been locked in for the last 804 days since June 23, 2022. Year-to-date, its shareholders have enjoyed a 10.37% rally, which has brought some light to the shares.
However, when compared to a 3-year number of 1.75% and a 5-year number of 5.43%, the opportunity cost becomes quite apparent, even with a current yield of 6.25%. Holding the big banks and big telcos in Canada has largely become a long-term capital gains issue for buy and hold investors, and the opportunity cost of missing out on massive capital gains continues to grow. Does Constellation Software (CSU.TO) represent the "bank of the future, as is the case of NU Bank (NU).
Moving beyond opportunity cost, letâs look at the chart for BNS.TO. Despite the relative strength metrics from our main coach, the chart actually looks decent. Recent point and figure signals indicate double tops (albeit over a two-year period), and a move to $69.29 would complete another double top for Bank of Nova Scotia, setting its sights on top-line resistance at $81.08, representing a 15% rally.
Resistance levels are at $69.20 and $71.99, with the top line at $81.08. Support on the chart is a tight range between $57.90 and $55.65. Banking is now a favored sector in the SIA, and the SMAX, a shorter-term indicator of strength across asset classes, shows a reading of 8, suggesting short-term money flows are present
The third chart compares Bank of Nova Scotia (BNS) to National Bank of Canada (NA.TO). In this comparison, BNS.TO shows continued relative weakness against NA.TO. The SMAX for this relationship is 0, indicating that NA.TO continues to lead. NA.TO is in the SIA Favored Green Zone in position #9, with a YTD rate of return of 24.99%, a 3-year return of 12.43%, and a 5-year return of 19.45%, along with a smaller yield of 3.55%.
The proven track record of the SIA Favored Green Zone suggests that higher-ranked names like NA.TO are currently better positioned. Stay tuned for updates as other big banks may move into the Favored Green Zone by setting SIA Zone Alerts on the SIA S&P TSX 60 Report. For assistance, please reach out to your SIA Agent.
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