S&P/TSX Composite Index (TSX.I) & BMO Equal Weight Banks ETF (ZEB.TO)

The broad market rally which really got underway two weeks ago continued to gain traction this week. What appeared at first to be a bear market bounce has extended into a sizeable, broad-based rebound with the Dow Jones Industrial Average retesting its August peak yesterday.

Headwinds from interest rates and the US Dollar have continued to ease with the US 10-year treasury note yield dropping back toward 3.70% from a peak above 4.20% earlier this month, which has also helped bond markets to rebound.

Another sign that fear has been easing is that the VIX volatility index has continued to drop back toward 20, while cryptocurrencies have started to stabilize. Concerns about the health of the global economy continue to linger, however, keeping pressure on crude oil and copper, but natural gas has diverged with a big bounce.

The retailing sector has been in the spotlight this week. Retailer earnings were mixed and polarized with companies either doing much better or much worse than expectations. Overall, department store results were mixed, countercyclical discount stores did well, and there were some bright spots in specialty retailers. This weekend focus turns to anecdotal reports on mall traffic for Black Friday sales, although one may wonder how much of a bump we may see considering that our inbox tells us that a number of chains have been running pre-Black Friday sales for several weeks now.

The coming week is quiet for the most part for news and potentially markets as investors take a breather with US markets closed all day Thursday and Friday afternoon. The end of the month is coming though and once things get back up and running in earnest on Tuesday there are a number of items on the way for investors to digest including manufacturing PMI, GDP, inflation and employment reports.

In this edition of the Equity Leaders Weekly, we focus on Canada with a look at the S&P/TSX Composite Index and preview Canadian bank earnings week.

Supported by its higher exposure to the Energy and Materials sector and a lower exposure to Technology and Communications relative to its peer US indices, the S&P/TSX Composite Index (TSX.I) has carved out its own path this year. While the S&P 500 (SPX.I) peaked in January, TSX.I held up through the winter and touched a new all-time high as recently as April before turning downward.

Over the summer, TSX.I established a floor of support through several successful tests of the 18,165 level. In recent weeks, TSX.I has started to recover, snapping out of a downtrend and completing bullish Double Top and Spread Double Top breakouts to signal the start of a new upswing, and then regaining the big 20,000 level.A horizontal count suggests initial resistance may emerge near 20,880 followed on trend by previous column highs near 21,729 then 22,165. A 3-box reversal suggests initial support may appear near 19,475.

The last hurrah of earnings season is coming next week with Canada’s Big Six banks scheduled to report results with several areas of concern for investors. Although the overall Canadian economy has continued to muddle along, housing data has continued to weaken raising concerns about bank’s real estate exposure and what that could mean for loan loss provisions.

Second, although equity and bond market conditions have improved in November, the August to October quarter was very choppy and challenging for equity and bond markets which could impact results from capital market and wealth management operations.

Canadian bank stocks, represented here by the BMO Equal Weight Banks ETF (ZEB.TO) have struggled for much of this year. After soaring in 2021 and into the start of 2022, ZEB.TO peaked in February and was under distribution until finally bottoming out last month.

In recent weeks, the banking sector has started to recover with ZEB.TO completing bullish Double Top and Spread Double Top breakouts and launching into a bullish High Pole. Initial upside resistance may appear at a downtrend line near $36.95, followed by $38.09 where a horizontal count and a previous column high converge, then a previous low near $38.85, the $40.00 round number, and the February peak near $41.65. Initial support appears near $34.85 based on a 3-box reversal.