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TSX trading near 2-year low… 11000 next downside target?

September 29, 2011 Leave a comment

Daily Chart:

Weekly chart:

How much higher can bonds go?

August 2, 2011 Leave a comment

In case you haven’t noticed, the TSX is down 5% YTD and 10% from April 2011 highs… which puts it squarely in a typical correction territory… while Bonds (as represented by XBB – DEX Universe Bond Index) are up 2.5% and 4.25% for the same period as illustrated by the TSX/XBB weekly charts

Here is look at the bond performance over the past decade… and today XBB gaped up!

The question is not how low can stocks go but rather how much higher can bonds go?

Bond prices are inversely related to interest rates i.e. if bonds are rising then interest rates/yields are falling… for all intents and purposes, XBB reflects all rates along the yield curve i.e. short and long term rates…

short term rates are above their record lows but 1% is still low historically

10 yr GOC yield is at 2.8%… which is ~10 bp higher than the most recent low of 2.68% from a year ago

So there is room for bonds to go up further especially considering the Euro area weakness… but will we see new lows in 10-year yields?

(in case you are wondering why the 10-year yields… the trend of 10-year yields is usually considered a good barometer of future economic growth)

tsx support levels – 15-Mar-2011

March 15, 2011 1 comment

TSX – perhaps May arrived earlier this year!

Levels to watch

· 13100 (61.8% Fibonacci retracement)

· 12325 (38.2% Fibonacci retracement)

XBB and correlation between Canadian Stocks & Canadian Bonds

March 13, 2011 Leave a comment

XBB – Conflicting technical signals

  • XBB broke out of recent downtrend line but… not above the previously broken long-term uptrend line
  • RSI & MACD are rising but price is declining
  • Also death cross signal – 50 day SMA crossed 200 day SMA from above

Fundamentally, Canadian interest rates are bound to rise in the near future which is not good for bonds.

Conclusion…keep a close watch for the next couple weeks

What is the correlation between returns on Canadian stocks and Canadian bonds?

I’m going to use the bond ETF, XBB to represent the DEX Universe Bond Index and S&P TSX Composite to represent stocks.

Correlation of Daily Returns is:

  • fairly volatile for smaller samples i.e. less than 3 months. (blue & green lines)
  • low and positive from 2001 to March 2010
  • -0.2 since March 2010 i.e. when one goes up, the other goes down.

Lets look at the correlation of monthly returns… partly because the daily volatility has been much higher since the financial crisis and that might bias the results. Again, it is a similar story, the smaller the sample, the greater tha

Correlation of monthly returns is similar to daily returns except:

  • 12 month rolling correlation deviates between 0.5 and -0.5 which is on the high side.
  • 3 yr correlation has been positive and low, around 0.1 since Jan 2009.

TSX is up 5% in 7 days – will the rally continue or fizzle out?

September 3, 2010 2 comments

The TSX Composite index is up 4.79% in the last 7 trading sessions on increasing volume… quite the gain you might say. What is the return following a huge parabolic gain?  

First, here is the 3-year chart showing the 7-day return…  

Source: stockcharts.com

 

Clearly there are few days where the 7-day return is greater than 5%… I suspect that is due to  higher than average volatility… So I went back and looked at 10 years of data and is here the distribution of 7-day returns  

  

Return Period – 7 days  

MIN – -22.6%  

MAX – 15.8%  

Threshold – 5%  

Observations – 2686  

Observations > Threshold – 99  

Just under 4% or 100 days in the last 10 years was the 7-day return greater than 5%… What is the 3-day return after these 99 observations? (I choose 3-days simply because it takes a lot less time to go down than to go up…yes, I’m biased to the downside)  

And here is a distribution of the 3-day (ex-post) returns after the 7-day 5% rally… the positive vs negative periods are fairly distributed (52% negative vs 48% positive) but with a fatter right tail i.e. more periods with higher positive returns or in other words… the chances of higher gains are higher than higher losses.  

  

 

   Note: As of 10am today (03Sep2010) the TSX is up about 0.35%

Technical Analysis of US & Canadian stock index with charts

August 20, 2010 Leave a comment

S&P 500 – technically doesn’t look good… fundamental bias to the downside after today’s unemployment claims

TSX – not so bad, holding support at crucial averages (50 & 200 day)

Performance of Commodity ETFs – worse than mutual funds?

July 26, 2010 Leave a comment

There has been a lot of chatter about the performance of commodity based Exchanged Traded Funds (ETFs)… Commodity ETFs surged in popularity circa 2006 making commodities a de facto asset class for the retail investor who was deprived of the higher returns… ETFs allowed retail investors to easily participate in the commodities boom-bust-boom cycle of 2007-2009…

Here is a roundup of articles on commodity ETFs

Amber Waves of Pain

Commodity Headwinds Disappear

The Limits Of Indexing

ETFs Imperil Commodity Investors

The following are links to Canadian ETFs listed on the Toronto Stock Exchange

TSX

ETF Encyclopedia

Yahoo ETFs

And here is a table of Commodity ETFs in Canada covering Oil, Natural Gas, Copper, Silver & Gold. The ones in bold are not leveraged, all other ETFs are leveraged…

There are plenty of ETFs that track equity indexes comprised of commodity stocks and will be a topic for another time

Name Ticker Type QMV (C$)
30-June-2010
Claymore Gold Bullion ETF CGL Commodity 516751697.2
Claymore Natural Gas Commodity ETF GAS Commodity 177625000
Horizons BetaPro COMEX Silver ETF HUZ Commodity 6360000
Horizons BetaPro NYMEX Crude Oil Inverse ETF HIO Commodity 5560050
Horizons BetaPro NYMEX Long Crude Oil/Short Natural Gas Spread ETF HON Commodity 7638000
Horizons BetaPro NYMEX Long Natural Gas/Short Crude Oil Spread ETF HNO Commodity 12361500
Horizons BetaPro Winter-Term NYMEX Crude Oil ETF HUC Commodity 5070000
Horizons BetaPro Winter-Term NYMEX Natural Gas ETF HUN Commodity 3475000
Horizons BetaPro Comex Copper Bear Plus ETF HKD Commodity
Leveraged
5216650
Horizons BetaPro Comex Copper Bull Plus ETF HKU Commodity
Leveraged
4805075
Horizons BetaPro COMEX Gold Bullion Bear Plus ETF HBD Commodity
Leveraged
4595500
Horizons BetaPro COMEX Gold Bullion Bull Plus ETF HBU Commodity
Leveraged
75926900
Horizons BetaPro COMEX Silver Bear Plus ETF HZD Commodity
Leveraged
3024000
Horizons BetaPro COMEX Silver Bull Plus ETF HZU Commodity
Leveraged
10230500
Horizons BetaPro NYMEX Crude Oil Bear Plus ETF HOD Commodity
Leveraged
35130200
Horizons BetaPro NYMEX Crude Oil Bull Plus ETF HOU Commodity
Leveraged
592141200
Horizons BetaPro NYMEX Natural Gas Bear Plus ETF HND Commodity
Leveraged
43544800
Horizons BetaPro NYMEX Natural Gas Bull Plus ETF HNU Commodity
Leveraged
539477400
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