The following is an exceprt of Greg Weldon's January 24th institutional newsletter, Weldon's Money Monitor.
On a long-term basis, dating back to the beginning of the last decade (end-1999), the Canadian stock market has VASTLY outperformed the US market, as is clearly evidenced in the long-term daily overlay chart on display below in which we plot the percentage change in the benchmark Canadian (purple) and US S&P stock indexes.
Since the beginning of 2000, the Canadian S&P TSX index is up +52.6% while the US S&P 500 Index is DOWN (-) 6.2%.
Hence, we find the more recent relative performance between the Canadian S&P TSX Index (again, in purple) and the US S&P 500 Index (black) now with the US market bidding to LEAD the way higher.
Indeed, note the difference between the current relative performance, and that seen during the 2009-2011 bull move, when the Canadian stock market led the US to the upside, for months on end, riding the back of a reflation in commodity markets, Asian trade, and US demand.
We wonder: if there is to be another wave of asset-price reflation, should not Canada be leading the way ???
If so, then is Canada currently 'undervalued', and a better relative 'play' ???
Then, IF (note the BIG 'if') asset-reflation is back in vogue over the medium-term, then perhaps the US-based Canadian iShare is worthy of a 'look'.
We note the chart below, revealing the 'shallow' 38% Fibonacci retracement in the EWC, since the spring peak, which has given way to a 'buy signal' in the medium-term Stochastic indicator, AND an upside violation of the medium-term trend defining 100-Day Exponential Moving Average.
A move above .15 would complete a head-and-shoulders bottom, and provide technical confirmation of an upside 'turn' by this "swing dog".
And finally, we have the two "lead dogs", the pair of dogs in the front of the team that is responsible for responding to the "musher's" commands, find and follow the trail, and set the pace for the entire team.
One of the "lead dogs" is the Canadian Dollar.
First, we note the high degree of positive correlation between the Canadian TSX Stock Index and the currency, as evidenced in the long-term weekly overlay chart on display below. We plot the Canadian Dollar (futures, versus USD, red line) against the S&P Canadian stock index (cash TSX, black bars). Telling is the tendency for the Canadian Dollar to 'lead' movements in the stock market, in both bullish, and bearish waves. The Canadian Dollar bottomed first in 2002, peaked first in 2007, bottomed first in 2008 ... and
... is now bidding to lead the stock market back to the upside.
With that in mind, we focus on the Canadian Dollar itself, seen in the daily chart on display below. The Canuck Buck currently sits at a CRITICAL technical juncture, with the fate of the entire dog-sled hanging in the balance. A move above 99.45 would be bullish, generating an upside violation of the longer-term trend defining 200-Day EXP-MA, confirming the upside penetration of the downtrend line in place since last summer, and validating the fresh Stochastic 'buy signal'.
A move in the CAD above 99.45 would be 'supportive' to thoughts of a medium-term appreciation in global asset-prices.
[Editor's Note: The CAD/USD exchange rate broke above 99.45 today after the Fed's announcement of extended lower interest rates.]
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