Short Royal Bank of Canada (RY)

Short RY

Fundamentals

• RY has over $222 billion in debt, which are mostly mortgages sensitive to interest rates rising.
  
• Interest rates will remain low, which will cause a falling dollar.
  
• The Canadian oil industry is a lot worse than USA and other parts of the world with break even costs at $60-65+ for oil sands. See the WCS Western Canada Select index.
  
• Falling oil prices lead to a weaker dollar, but help exports.
  
• Other Central Banks are raising interest rates, which will cause the CADUSD to weaken compared to others. This could cause a currency crisis which could lead to raising interest rates quickly.
  
• Falling CADUSD is negative on Canadian equities.
  

Technicals and Trends

• The long term trend line has been broken.
  
• The 200 day moving average has been broken.
  
• Notice the green oval, it is the same pattern in 2016 when the USDCAD was rising (CAD falling).
  

Disclaimer:
I am not a professional trader.
These are my personal notes for my use only.
I do not give trading advice.
I take no responsibility for any actions taken or losses occured from using the information provided.

Thanks and enjoy.

Comment:

Correction:
"Notice the green oval, current candle stick pattern is the same pattern in 2015", not 2016

Comment:

March 13th US CPI should be up

Comment:

Update, oil looks like its ready to break down below $60 for a short period of time, which will pull Canadian financials down with it, as Canada is a petro economy. Oil will bounce but it is unknown what range it will trade moving forward. Even the best oil traders and analysts have got their predictions wrong. A falling USD over 2018 and forward could cause a melt up in commodities IF US central bank doesn't keep raising interest rates.

Canada's banks hold the most of three assets:
1) Loans to oil companies - the oil industry in Canada is still not doing well, and it could get worse before it gets better. Venezuela going bankrupt might help bump up the oil price in the short term.
2) Canadian mortgages - complete bubble, new mortgages are slowing down
3) Canadian dollars - Canada's central bank is not raising interest rates because of #1 and #2. This puts pressure on the Canadian dollar which is the main value of what Canadian banks are holding in cash accounts.

Comment:

Another note is banks revenues can't increase if the BoC doesn't raise rates so banks can collect more interest. So even if they raise or don't raise, it's pretty much down from here. There could be a slight bump up in bank stock prices if they do raise rates, but it will cause a further slow down of markets.

Comment:

Another idea to add to this thesis, when oil fell in 2014 from $100-110 to $60, this caused RY to fall from $73 to $57. Oil is at $60 now and RY is $77.72. So you can see the divergence is a lot. Even at RY at $60, it would have to fall $17 to close this difference.