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TSX trading near 2-year low… 11000 next downside target?
Daily Chart:
Weekly chart:
How much higher can bonds go?
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
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
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?
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
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?
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
ETFs Imperil Commodity Investors
The following are links to Canadian ETFs listed on the Toronto Stock Exchange
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 |
Performance of Canadian assets this decade
How have various Canadian Assets performed since the heydays of 2000?
Which asset do you think appreciated the most?
stocks
bonds
commodities
your house
The chart below answers your question…
For the curious, here is the table with the relevant values:
| Asset Class | Proxy | Annualized Return | Total Return (Unannualized) | Value of $100 at Start of Period |
| Stocks | S&P TSX Composite Index | 3.67% | 45.13% | $145 |
| Bonds | iShares Canada DEX Universe Bond Index | 3.94% | 43.95% | $144 |
| Commodities | Bank of Canada Commodity Price Index | 5.78% | 78.68% | $179 |
| Existing Homes | Teranet House Price Index | 6.22% | 86.51% | $187 |
| Inflation | Consumer Price Index | 1.89% | 21.30% | $121 |
Data Source:
Bank of Canada, Teranet, iShares & Yahoo Finance
Death Cross on the S&P TSX Composite?
The TSX is awefully close to a Death cross signal (50 day simple moving average crossing the 200 day moving average from above i.e. 50 day average is less than 200 day average)…
I think we are bound to get a death cross within the next week… the TSX is about 300 points away to signal the death cross as of yesterday’s close.
Source: stockcharts.com
How good is the Death Cross signal? To answer this I looked at all the historical data I could get and analyzed the returns based on Short Selling at close on the day of Death Cross and covering and going Long at the next Golden cross (50 day SMA crosses 200 day SMA from below)
I understand 10 years is a small sample but it is better than nothing 🙂
If you only traded on the Death Cross & Golden Cross from the first signal in Nov 2000 you would be way ahead of the market for the analyzed period analyzed… hell, you would be better off just going long and sitting out until a Golden cross is recognized!
On the other hand, the Death Cross is only good half the time where as the golden cross is only good 4 out of 10 times BUT provides a better return than the death cross…
| 24-Nov-2000 | 15-Jul-2010 | ||
| Total | Death Cross | Golden Cross | |
| Short Trade | Long Trade | ||
| Total Trades | 11 | 6 | 5 |
| Winning Trades | 5 | 3 | 2 |
| % Winning Trades | 45% | 50% | 40% |
| Largest Winning Trade | 56.8% | 20.5% | 56.8% |
| Largest Losing Trade | -7.7% | -7.1% | -7.7% |
| Cumulative Compounded Return | 125.0% | 25.8% | 78.9% |
| $1000 = | 2,249.82 | 1,257.75 | 1,788.77 |
| Buy & Hold Return | 30% | ||
| $1000 = | 1,301.11 |
(If you know where I can get historical data beyond 2000, please let me know)
For more information on Death Cross & Golden cross check out:
http://ibankcoin.com/woodshedderblog/2010/07/01/what-you-need-to-know-about-the-death-cross/
simple financial analysis 