Bank stocks have been outperformers, especially in the back half of 2024 and the early days of 2025. As central banks around the world began to lower interest rates, the value of interest-sensitive banks indeed rallied in unison. From a sectorial point of view, the SIA platform detected this strength early on as the banking sector rallied into the favored zone of the SIA Sector Report. In many of the reports, banking stocks were well represented in the favored zone of these SIA stock reports, but one name that was noticeably vacant from the favored zone was that of Bank of Nova Scotia (BNS.TO). Shares did rally with the market and sector by 21.70% over the past year, which was pretty much in line with the S&P/TSX 60 Index 1-year return of 21.55%. But at SIA, we don't tend to look at absolute returns, but rather those of comparative returns, which then take into account the opportunity cost of any position and capture a more holistic view of the market opportunities. To drive this concept home, take for example shares of Canadian Imperial Bank of Commerce (CM) with a 1-year return of 51.82% or Royal Bank of Canada's 1-year return of 33.44%, both of which are ranked high (favored) within the relative strength matrix of the SIA S&P/TSX 60 Index Report. This underperformance is captured in a visual way in the SIA matrix position chart above, where the shares have remained in the red unfavored zone for this entire time. Given some recent sharp pullbacks in BNS.TO shares, we felt it timely to review the point-and-figure (PNF) chart to ascertain some important support levels for the shares. The first notable attribute of the PNF chart is that the shares have rallied up to the long-term resistance level at $78.75, at which point supply may have taken control of trading as shares slipped into a column of O's. This 3-box reversal represents the first level of support, while the level $65.90 is also noted, as well as the longer-term support zone at $55.14, which is also the long-term trend line on the PNF chart. Shares of BNS.TO carry an SIA SMAX score of only 4 out of the best score of 10, which is another vector of technical analysis that captured BNS.TO's relative strength against other asset classes.
Turning to the SIA candlestick chart, we can see the downtrend in the shares over the past quarter, where shares have slipped -2.78%, while the index has gained +1.76%, or an opportunity cost of +4.54%, further enhancing BNS.TO's relative underperformance characteristics. Notice also the tall candle earlier this month, where shares temporarily fell but quickly recovered. As the old saying goes, where there is smoke..., the odds of recovery may be slipping as shares, while currently minding the prior gap, may face increasing resistance stacked against Bank of Nova Scotia. Here again, we can visually see the resistance at $73 while the support appears visually around the $64 level. This may be a moot issue, as the banking sector is still favored and could keep all the boats afloat on the high tides, but any sector reversal may come first for the weakest members, of which BNS.TO might find itself exposed as an underperformer.
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