Canadian Trading Trends
Everybody wants to make a buck on the markets. The problem for so many of us is that the financial markets can be confusing and intimidating at times. The S&P/TSX is the premier stock exchange for Canadians. It lists a large selection public companies and the market capitalization was reported at $2.2841 trillion as at 30 March 2017.

There are multiple indices on the Toronto Stock Exchange (TSX) including the S&P/TSX Completion Index, the S&P/TSX 60 and the S&P/TSX Composite Index. Recently, the Toronto Stock Exchange hit an 8-month low. This presents many challenges to Canadian investors are looking to profit off the appreciation of stocks.

Why are Markets Bearish in Canada?

It’s important to understand that the Canadian economy is driven largely by commodities, notably crude oil. On Friday, 7 July 2017, the TSX plunged to a near 8-month low at 15,027.16.  This was driven by multiple factors including weakness in oil prices and a desire for an interest rate hike by the Bank of Canada. Investors don’t miss an opportunity to make a buck on the markets. Since then however, the TSX has rallied. By Monday 17 July, 2017 the TSX was trading at 15,175.76 and is on a gradual uptrend. This is also being fuelled by rising oil prices, spurred by strong demand from China.

In June 2017, Canada’s jobs numbers were better than forecast. Pundits were expecting 10,000 new jobs to be added, but the Canadian economy added an incredible 43,500 jobs. Of course, the US economy performed more robustly, given its size and sheer volume with 222,000 new jobs added in June. South of the border, analysts were anticipating 179,000 new jobs. Equally surprising was the yield on 10-year bonds in Canada, now at 1.884%. Every time bond yields rise, traders retreat from equities markets.

Oil prices have whipsawed in recent weeks. Lower prices were driven by increased production with US shale oil producers. According to the Canadian Association of Petroleum Producers (CAPP), 2017 production will increase by 270 K per day, while 2018 production will increase to 320 K per day. With such dramatic increases in production, it’s no wonder that oil prices are being depressed and the TSX is affected. Fortunately for the bulls, rising oil prices can turn markets around and this is what we have been seeing recently.

 

Charles Mandel, an acclaimed equities trader, routinely directs traders to didactic resources to understand how macroeconomic activity impacts individual stocks. One such example is the Stern Options Facebook page which lists economic news releases, stock price movements and other economic data for Canadian traders.

Canada’s economy is largely driven by crude oil. It is the world’s third-largest source of crude oil reserves, and it ships more to the US than all other countries combined. WTI crude oil rig counts have been increasing for 23 weeks on the trot. There is still tremendous potential for output to increase further. As a trader, this information can be put to effective use with put options on oil-producing companies across the board.

How Can Canadians Benefit from Bearish Markets?

While markets are trending bearish, it’s important to understand that there are options available. If you are interested in equities trading, your strategy should be one of short-selling weak companies. Weak companies may include the energy companies such as Exxon Mobil Corporation, Sunor Energy Inc, and Cenovus Energy Inc.

Note that the market capitalization of these companies has decreased significantly since the oil heyday a few years ago when prices were $100 + per barrel. Markets have absorbed much of the weakness in energy stocks, and further depreciation of prices will have a much lesser effect on overall market performance.

While a bear market is taking place, it’s important to identify all the companies that meet these criteria. Things to look for include companies that are operating in a declining ‘economy’, companies that are operating in a weak ‘sector’, or companies with little or no earnings to speak of. If the stock that you’re considering is rapidly approaching a sell signal, or it is performing poorly relative to overall trends, it should be identified as a bearish stock.

There are many tell-tale signs of how to identify the development of a bear market in Maple Country. Equities markets will typically decline before the economy starts to move into recession. Interest rates usually start to rise at about the same time that the market starts to turn and there are bare alert signals on the bullish pattern index indicator. Regardless, there is always money to be made in bear markets!

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