TSX Support – Come out, come out wherever you are.

- October 28th, 2009

By Craig Basinger – Courtesy of the Crow’s Nest Report Goodbye support line which had held since the market bottomed in March, see you later 50-day moving average, here comes the 100-day moving average. Where will the market find support? Well today’s economic data did nothing to help the markets. While the durable goods orders … Continued

By Craig Basinger – Courtesy of the Crow’s Nest Report

Goodbye support line which had held since the market bottomed in March, see you later 50-day moving average, here comes the 100-day moving average. Where will the market find support? TSX

Well today’s economic data did nothing to help the markets. While the durable goods orders were marginally better than expected, the market has taken hold of the decline in housing starts as the reason to continue to sell off. In yesterdays post on consumer confidence we noted the TSX had broken through its long term trend line which had held since the market bottomed in March (purple line). Now just before the market close, we look to be settling in on the 100 day moving average. The 10,805 level will be crucial to put a stop to the bleeding.

Every sector in the TSX was lower today, with the cyclical Materials, Energy, Industrials and Information Technology leading to the downside. Some conciliation is the banks and financials did not show much weakness today. The financials were very weak yesterday but could be showing signs of oversold based on their relatively flat performance today.

Based on the close at or near the session lows, few in the market wish to be long ahead of tomorrow’s U.S. GDP report. It is scheduled to be released at 8:30am on Thursday and the results will largely dictated if we are going to have yet another down day or if we can put a plug in this sell-off. Based on Bloomberg’s survey, the median expectation is for 3.2%. Key numbers underneath will be the contribution from the consumer, business spending and inventories.

U.S. Market and the U.S. DollarS&P and DXY

Once again we have a day with the U.S. market lower and the U.S. dollar materially higher. This trend, which we wrote on a couple weeks ago (click here for report), has actually strengthened lately. We believe one of the driving forces behind this relationship are the higher percentage of international operations among the S&P 500 constituents. But more importantly, we believe in the current global markets the U.S. dollar is viewed as a safe place to park money despite the anemic yields and gradual loss of purchasing power. This chart shows the S&P 500 and the U.S. dollar (inverted).

The implication of this relationship for Canadian investors could not be greater. Afterall, if the U.S. dollar is going to decline when the market moves higher, a portion of gains will be lost to currency. And after the past decade, Canadian investors are not fans of currency risk. While not a fan of hedging currency in the long term, given the high degree of negative correlation between equity returns and the U.S. dollar, we would hedge for the time being for those going long the U.S. market.

Trade Ideas dependant on tomorrow’s US GDP data

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