Bank Of Nova Scotia Stock Takes A Hit

Bank of Nova Scotia stock (BNS Stock) trades on the Toronto Stock Exchange and New York. Bank of Nova Scotia Stock (BNS Stock) figures are in Canadian Dollars and charts and quotes are from the Toronto Stock Exchange and not New York.

Bank Of Nova Scotia stock on Friday Dec 2 announced excellent earnings yet the stock fell 3.5%.

Bank of Nova Scotia stock has had strong support around $49 to $50 for many months but that support may now move lower. The worry investors have for this stock is that Bank of Nova Scotia is more international than all other Canadian Banks. The bank has expanded into Asia, South America, and the Carribbean.

Bank of Nova Scotia is Canada’s third largest bank with market cap of about 50 billion dollars. Earnings for the fourth-quarter rose 11% to $1.10 per share beating analysts’ expectations.

Yet the earnings on Friday while beating analysts estimates, show that the growth in the international markets is not as strong as investors had hoped. The core strength for Bank of Nova Scotia remains the domestic market of Canada which as everyone knows is highly competitive. Bank of Nova Scotia also posted higher loan-loss provisions of $272 million versus $254 million from the previous year which reflects international banking. Loan-loss provisions for Canada declined.
 

Bank of Nova Scotia Stock (BNS Stock) Could Be Starting A Lower Range

Since peaking back on Feb 18 2011 at $61.28 Bank of Nova Scotia stock BNS Stock has fallen 21.6% and reached true support in the stock around the $50 valuation. Just as in prior markets, Bank of Nova Scotia overshot on the upside and was over-valued at above $55.00.

The chart from the past year can be seen below. Bank of Nova Scotia stock pays an annual dividend of $2.08. On Friday Bank of Nova Scotia stock BNS Stock closed at $48.99 near the lows for the day. This brings the dividend to 4.2% at 48.99.

MACD (Moving Average Convergence / Divergence) is relatively flat while the Ultimate Oscillator is negative and shows the stock is not oversold. The Rate of Change is mildly negative but momentum in the stock has been decidely bearish since March.

Bank of Nova Scotia Stock Dec 2010 to Dec 2011

Bank of Nova Scotia Stock from Dec 2 2010 to Dec 2 2011

If Bank of Nova Scotia (BNS Stock) is moving to a new trading range what could investors expect? The book value of Bank of Nova Scotia stock is $26.06. Earnings are $4.62 and revenue is $18.7 billion. It is presently trading at 10.62 times earnings.

To try to figure out where Bank of Nova Scotia Stock may trade in order to commence put selling on this bank I like to look at the history of Bank of Nova Scotia stock.

Bank of Nova Scotia Stock (BNS Stock) 5 Year Chart

Looking at the Bank of Nova Scotia Stock 5 year chart below, I can plot out the areas of strength. It’s easy to see why $49 to $50 have so much strength. Over a period of 5 years the stock was in that range the majority of the time.

In 2007 and again this year, the lows were around the $48.00 valuation for Bank of Nova Scotia Stock so again there will be some support at that level.

Aside from this the remaining support is around $45.00.  After the crash of 2008 – 2009, the stock quickly ran back up to $45.00 and traded in that range for sometime. After $45.00 there is really no support in Bank of Nova Scotia Stock so it would be a question of whether below $45.00 fund managers and the smart money would step in feeling it is under-valued. I have found that usually when a stock breaks final support, the smart money traders stay away waiting for the stock to bottom and turn back up, so I doubt they would step in at the outset.

Bank of Nova Scotia Stock BNS Stock 5 Year Historic Chart

Bank of Nova Scotia Stock (BNS Stock) from Dec 2 2006 to Dec 2 2011

Bank of Nova Scotia Stock and Put Selling Strategy

I have always liked Bank of Nova Scotia Stock for its highly defineable ranges. I would not be surprised if the stock traded at around 9.5 times earnings which would place it down to $43.89 which is just below the $45.00 support. For put selling on Bank of Nova Scotia Stock I will start by selling put contracts at the January $44.00 strike. My strategy will be to sell quantities of 5 puts each time and move lower as the stock moves lower. The annual Bank of Nova Scotia Stock dividend of $2.08 should lend some support but as seen in the 2008 to 2009 period, when panic sets in the stock can collapse farther than investors can imagine.
 

I do not believe we are anywhere near to 2008 – 09 panic levels. Bank of Nova Scotia had no exposure to the Europe Debt Crisis but like all financial securities, investors will remain wary and Bank of Nova Scotia Stock will probably remain under pressure. This should push up volatility and make put selling very viable.

With the above information to support my put selling strategy, I commenced on Friday by selling 5 Put contracts for Jan 21 2012 expiry at the $44.00 strike for .55 cents.

My goal will be to stay as far out of the money as premiums warrant and keep the put selling to within a month or two expiry. Select this Bank of Nova Scotia stock link to go to BNS Stock investors and shareholders for their latest financial results.  I believe Bank of Nova Scotia Stock (BNS Stock) makes for a compelling put selling strategy for my Canadian Stock Portfolio.