Monday 11January2016 - Canadian Dollar and Stock Market Outlook!

From Danielle Park’s blog.  Monday 11January2016

Secular bear mauling Canada (encore)

Posted on January 11, 2016 by Danielle Park

Canadian dollar index (FXC) broke below .70/U$ this am as West Texas Crude broke below $32 and copper below $2.00.  Canada can’t catch a break these days.

The TSX is officially into bear market territory, now down more than 20% from the cycle peak in September 2014 and falling… Closing below 12,700 (dotted line below) last week, the next key test is the 11,000 area (brown bar below) which was the dot.com peak in September 2000, as well as support that held through the QE-led exuberance of late 2009 to late 2012.

 

If the 11,000 support area fails once more, we will be watching for a test of the 2009 uptrend (yellow bar) in the 10,000 area.  Ultimately, history suggests that if the present downturn is to be the third and final cyclical bear to end the secular bear that began for stocks from extreme over-valuations in 2000, then a retest of the March 2009 lows (green bar) in the 8,000 level is in the cards for the TSX composite.

The Canadian dollar (red below) typically leads the Canadian stock market (TSX in blue since 1999), and it’s already below the 2009 low as shown here.

 

At Venable Park, we have long suspected that at least one more test of the 2009 lows was probable before this secular bear could end.  Time will tell if that thesis was correct.  One thing for sure, few financial managers have told their clients or investors that this is a probability.

Click image to enlarge.