Chart of the Day: TSX Composite Index: SWM 7/05/23

Our Chart of the Day is intended to be a standalone technical chart. We use them to highlight open positions, stocks on our watch list, or indicators that we believe are important, or just interesting at the time. It is not a directional market call. Feel free to share them with others who may be interested.

• Chart 4 is a daily 1.5-year chart of the TSX Composite Index. (TSX)

• Canadian productivity is in the toilet with Ontario coming behind the lowest state in the US, Alabama, in terms of productivity per capita.

• Mining, Banking and Energy continue to struggle for now, leaving the TSX muddling about near the 50% retracement of the decline from 2022.

Chart 1: Energy: (iShares Capped Energy ETF)

My sense is that the energy sector will see some improvement in 2H based on supply constraints and ongoing demand, recession or no.

Chart 2: Banks: (BMO Equal Weight Banks ETF)

The big Canadian banks face ongoing macroeconomic headwinds including rising interest rates, inflation pressures, and slowing growth/recession worries. The inverted yield curve also warns for oncoming higher credit costs, all of which suggest subdued earnings growth prospects at the Canadian banks. Since this is already known, we’ll watch the charts to see if the trend changes before data improvements become obvious.

Chart 3: Mining: (iShared Global Mining ETF)

The story of massive undersupply of metals like copper will drive prices higher this year. But the sector continues to consolidate. While traded in Toronto, XBM consists mainly of US and global mining companies. It does also seem just a matter of time until this sector breaks out higher.

Chart 4: TSX Composite Index

Now that the weight of evidence is positive for US stock markets, monitoring for sector relative strength will be the only way forward given the disparity of performance I expect we will continue to see based on a rolling stagflationary environment I expect will continue.

The TSX will need these sectors to come to life it is going to start an uptrend and gain in relative strength vs. the S&P500.