The Canadian TSX is now negative 5.75% for 2011 which means those who are holding have had lots of volatility with no reward and have already given back almost 6% of the QE2 mirage gains made in the last quarter of 2010. Interim rally days are par for the course, but having broken now more than 700 points below long-term support (@13,427), the question to be answered here is where will the index find ultimate support in this cyclical decline? If this is like 2008, it could be much lower as shown below, where the index lost half of its value in 4 short months from July to November.
Nearer-term it seems the 11,000 level that the index rallied from before QE2 seems a reasonable marker. In fact the 11,000 level provided support much further back in the last cycle peaking there in August 2000 (again before losing 50%). If we see a break of 11,000 in the days and weeks ahead, 9500 becomes the next level to watch for support. Beware the long-always advisors and commentators–they will be denying the risks now just as much as they denied them in every other major downturn. Govern your capital accordingly.