What are the stock charts of Canadian banks saying?

I must admit that I'm worried about the Canadian banks.  Not withstanding all of the risks surrounding the Canadian housing bubble, they're overvalued when compared to their US and especially European counterparts by at least 50%.  P/E and P/B ratios suggest this nearly across the board.  The risks associated with the Canadian real estate market is the single reason why I have no Canadian assets other than my primary residence.  The charts of the Canadian banks are difficult to interpret.  RY & TD are of course the strongest and have held up best over the past 2 years.  But this could be a "flight to supposed safety" as Canadian investors move further into the "safer" banks.  The downtrend the bank charts show doesn't look as severe as the early downtrend prior to the financial crisis but they do illustrate concern among investors.  They continue to post lower lows at a slow grinding pace - 2 years and counting.  Unfortunately, when it comes to downtrends, the most pain is usually felt at the end.  I'm sitting this one out.

Canadian Banks No Longer Leading US Banks. Trouble Ahead For The Canadian Economy?

The Canadian banks (XFN) have outperformed their US counterparts (XLF) since 2009.  They have been placed on a global pedestal due to their reluctance to participate in the subprime mortgage debt and collateralized debt obligations that precipitated the Great Recession.  Their balance sheets remained extremely healthy and their stock prices reflected this to this day.  But that was then...

Two of the 4 wheels have blown on the car that is the Canadian economy.  Precious metals and material stocks are down some 70% since 2011.  Now stocks of energy producing companies are free falling in tandem with the price of oil which seems to be in global abundance despite the fact that the opposite view held the public consensus only 6 years ago.  Don't get me started on the Canadian housing market.

Banks and financial sectors reflect the overall health of a country's economy.  Their relative performance is predictive of the relative performance of a given country's economy.  The chart above would suggest that growth in the US economy will continue to outpace that of the Canadian economy.  If the Canadian bank index is unable to post new 52-week highs and/or trends lower trouble is ahead.

Vanguard Canada Must Own ETFs for Canadian Investors. VUN and VFV.

Vanguard Canada provide the best and cheapest ETFs available to Canadian investors.  Two must have ETFs for Canadian investors are the US Total Stock Market ETF (VUN) and the S&P 500 ETF (VFV).  Both are NOT hedged and provide broad exposure to the US stock market and the US dollar. They are the cheapest ETFs of their kind and have extremely low management expense ratios (MER).  The MER for VUN is 0.15% while the MER for VFV is a category low of 0.08%.

The S&P TSX Composite Index Will See New Highs In The Near Future

After the 1973-74 bear market, the TSE 300 (now the S&P TSX Composite Index) underwent a multiyear period of price consolidation prior to its breakout in 1978.  Do you see the similarities between now and then?  Note how bad the following 1982-83 bear market that succeeded the breakout was.  The early 80s recession was a very difficult time for Canada.

Canadian Real Estate Prices

The above chart nicely illustrates the fact that Canadian real estate prices have appreciated significantly for 10 straight years, correcting briefly during the great recession. As this graph climbs higher, owning a new home becomes increasingly expensive relative to renting. Notice that in 1989, real estate prices peaked and entered a 10 year period of price consolidation during the tech boom of the 1990s. The smart money left the real estate market and went into the stock market -- technology stocks in particular. The smart money left the US real estate market in 2008. The price-to-rent index in Canada can't climb indefinitely. Last summer appears to be a potential top in Canadian real-estate as prices are down markedly this summer in metropolitan areas such as the GTA , Vancouver and Montreal. It is possible that history will simply repeat itself and we may experience a prolonged period of stagnation as the speculators become frustrated with the Canadian housing market.

The more important question is where will the smart money head next?