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Royal Bank of Canada (RBC) logo is seen at a branch in Toronto. (© Mark Blinch / Reuters/REUTERS)
Royal Bank of Canada (RBC) logo is seen at a branch in Toronto. (© Mark Blinch / Reuters/REUTERS)

Eye on Equities

Charts turning ugly for RBC shares Add to ...

The rebound in Royal Bank of Canada shares that began in late November may have run its course, warns technical analyst Dennis Mark of National Bank Financial.

The stock’s rally above its declining 200-day moving average failed to pick up much steam as chart resistance came into play at $53, he notes. Meanwhile, increasing volume on the downside as the stock weakened to test key short-term support at $51.50 suggests increasingly aggressive sellers.

Mr. Mark also notes a negative signal in the larger financial sector. Rebounds in both the KBW Bank Sector (BKX) and S&P Financials indices in the United States are stalling and key chart resistance levels are holding.

A failure to hold $51.50 will take the stock back under its 200-day moving average (red line below), further confirming the reversal of the short-term trend, he maintain.

Mr. Mark believes that next support at $50.50 and $48 “will be challenged again.”





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CIBC World Markets Inc. analyst Jacob Bout has jacked up his price target on Canadian Pacific Railway Ltd. by 18 per cent as the high-profile battle over who should lead the company rages on.

Activist investor Bill Ackman is pushing for former Canadian National Railway Co. CEO Hunter Harrison to fill CP’s top executive spot, currently held by Fred Green. Mr. Harrison is believed to be exploring his options that would be allowed under his contract’s non-compete clause.

Mr. Bout notes that the hope is that CP’s operating ratio, which has significantly trailed that of rival CN, could eventually come down within a few percentage points of CN’s under Mr. Harrison’s leadership. Mr. Bout estimates that every 1-point improvement in CP’s operating ratio adds 10 to 15 cents in earnings per share, so lowering its operating ratio from current levels to CP's 70 per cent target would add approximately 90 cents to CP's earnings per share.

Upside: Mr. Bout raised his price target to $77 from $65. He reiterated his rating of “sector perform.”

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Meanwhile, Mr. Bout identifies Hunter Harrison’s possible accession to CEO of CP as the biggest risk for Canadian National Railway in 2012.

Should Mr. Harrison replace Mr. Green, the former’s intimate knowledge of CN is likely to produce some legal action, explains Mr. Bout. But Mr. Bout still see further upside in CN stock as he rolled out his 2013 earnings per share estimate of $6.

Upside: Mr. Bout is increasing his price target to $90 from $83 and reiterating his rating to “sector perform.”

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Strong fourth-quarter results for Lululemon Athletica Inc. have RBC Dominion Securities Inc. analyst Howard Tubin raising his price target for the Canadian yoga apparel stalwart’s stock.

The company now expects fourth-quarter earnings per share to be in the range of 47 to 49 cents, ahead of previous guidance of 40 to 42 cents.

“We continue to believe in the power of the LULU product and their strong holiday performance among a highly promotional environment proves their brand’s strength,” says Mr. Tubin. “In addition, better in-stock levels should help fuel continued top line momentum despite difficult comparisons.”

Upside: He has raised his target price to $70 from $60 and reiterated his “outperform” rating.

Related: Rich valuation makes more Lululemon gains a stretch

Related: Lululemon shares jump as it boosts outlook

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CIBC World Markets Inc. analyst Kevin Chiang believes Air Canada has done an “admirable job” in managing through a challenging labour and market environment and he believes Ottawa will not allow a lengthy labour disruption at the airline. But he still sees risks relating to its pension deficit and higher cost structure versus its competitors.

Downside: Mr. Chiang cut his price target by 25 cents to $1.50 and maintained a “sector performer” rating.

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