As we have written frequently in the past, the Canadian stock market is precariously concentrated in its over-valued energy and finance sectors today. With both in a much deserved mean reversion phase, the TSX has completed a rapid round trip back to levels first achieved in early 2007–when the world actually believed commodity producers were invincible and Canadian banks were genius. Goodness how things have changed.
Off 3% so far today, the TSX is now below the rebound peak it achieved in 2011 when some actually believed that central banks and ‘QE’ could paper over the world’s debt problems. As reckless leverage and naive optimism recede, the truth is that the TSX may well have a difficult time holding at the QE-4ver uptrend (green below) that began in 2012.
If price support fails there, then a retest of the 2012 lows in the 11,200 to 11,500 level (shown at lower purple band), before QE-4evr beliefs began, seems a likely next test.
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