Canadian VIX: TSX to have their own volatility index

I don't know if anyone noticed, but in my previous post discussing the TSX, I included a chart of VIX (S&P500 volatility index) versus S&P 500. VIX is one of the market indicators that I can't live without. However, as much as the Canadian and the American equity markets are correlated, they are still separate markets. So using the VIX vs. S&P500 on an analysis of the TSX is like borrowing salt from thy neighbour. But there's no more need for that soon as TSX is finally getting its own volatility index starting Monday (October 18)! This is to replace the MX Implied Volatility Index (MVX) from the Montreal Exchange, which I didn't have access to previously (aside from data published on their website). One question I have is that the TSX VIX will be based on TSX 60 index options activity according on their press release, but the TSX 60 index options isn't that active. So would the TSX VIX be as efficient as the S&P500 VIX? An opportunity with the introduction of TSX VIX on the Toronto Exchange is that I can now place bets on market volatility in my self-directed RRSP trading account. Which is arguably more predictable than the underlying index these days... In any case, this will be a vital market indicator for Canadian market traders. For more information on TSX VIX, see the product information page on Standard & Poor's. And a hat tip to Option Matters (Montreal Exchange's blog on options) for this news.

Posted 14 October 2010 in stocks.

Three obvious reasons to watch 13,000 on the TSX

Talks of QE2 (WSJ: QE2 or Titanic and Econbrowser: Why is the Fed doing this?) and earnings season are pushing the market higher and higher. Gold is still pushing to new all time high and the dollar is breaking to new lows. The TSX, in particular, is testing 12,700 today. 13,000 is just around the corner. 13,000 price level is the line in the sand for the commodity-heavy TSX for three obvious reasons.

  1. It marks the breakdown support level back in the 2008 crash.
  2. It is the bottom of a prolonged congestion zone in much of 2007 and 2008 before that crash.
  3. And most importantly, #1 and #2 are very easy to spot on the chart (potentially self-fulfilling).

It is likely that the TSX will be reaching 13,000 shortly in this earnings season. However, what happens afterward is anyone's guess. At this point, I am neither long or short for the long term. The reward/risk isn't good for going long at this point with that much uncertainty. And the threat of QE2 and earnings release isn't good for going short either. I am watching the forex market closely for signs of a direction as that is a driver of the equity market these days.

[caption id="" align="aligncenter" width="570" caption="S&P TSX"][][][/caption] [caption id="" align="aligncenter" width="570" caption="CBOE Market Volatility Index (VIX) vs. inverse S&P500"][]1[/caption]

Posted 13 October 2010 in stocks.

To hell and back? A review of TSX after a V-day

As every trader knows already, the Dow tanked 1,000 points (about 9%) in like 15 minutes today. But what's more amazing is that all the indices made their way back just as quickly. Figure 1 below is today's chart of TSX Composite (blue) and S&P 500 (red). So what does this mean for TSX?

TSX Composite and S&P 500 Let's zoom out to take a look at the big picture. Figure 2 is a weekly chart of TSX. The top indicator is the percentage of TSX traded issues above their 200 day moving average. The overlay indicator is the percentage of TSX traded issues above their 50 day moving average. The lower indicator is the percentage of issues above 200 MA divided by the percentage above their 50 MA.

[caption id="" align="aligncenter" width="570" caption="TSX Composite"][][][/caption]

The TSX index is an aggregate of prices from a handful of companies. But there are over three thousand issues trading on the TSX. This view of Figure 2 provides another perspective of where the market stands.

The question to be answered is this, how much technical damage did today's sell-off produce?

Not much apparently.

Coincidentally, both the 200 and 50 numbers are at their respective support after the close. This is as low as we have been in the past 9 months or so. However, they are still hanging high above according to the 200 percentage. There are still 56.5% of companies above their 200 day moving average.

On the shorter term though, the 50 number is pretty low at 30%. Only 30% of companies are above their 50 day moving average.

Referring to the historical pattern as shown on Figure 2. Typically numbers 30 or below means that the down move is exhausting. Since most (70%) companies are trading low already, so there's not much room for big dives until the market can reload. It is interesting that we touched 30% this week yet the TSX index is still not down that much in the big picture.

Don't get me wrong, I am still bearish on the market in the long run. But I don't think today's move is the beginning of the dive. Since volatility has contracted to a recent record low, this move is just a shake-out of the bulls. Is this the end of this down move? I don't know. But I expect to see at least an opposite shake-out of the bears soon before any real move can materialize. Control your risks in expectation of big ups and downs in the near future.

It's just too good to be true for the bears that the market makes a U-turn and head straight down after congesting below a support level for weeks.

In terms of my trading, I'm all cash today. So it was fun to watch the move with no strings attached. I covered my CVE.TO shorts yesterday at a decent price. CVE.TO broke down further today during the panic but ended up closing slightly higher. So my exit was good as I couldn't have covered during that rapid breakdown.

P.S. Mish offers a good brief on today's extraordinary move.

Posted 06 May 2010 in stocks.

Lucky exit for CAD/JPY long yesterday, downtrend resumes now?

I booked my profit on my CAD/JPY long last night mere pips away from the top. It was a lucky move, that's all. Now it looks as though CAD/JPY will do one of the following:

  1. Break down from here. A break below 86.50 will confirm an intermediate term downtrend. However, I don't expect CAD/JPY to spin on a dime right after testing an obvious resistance. So I think #2 is more likely.
  2. False breakdown to above 86.50, retrace to 88.00, and hang around this range for a few more days then initiate an intermediate term price fall (#1).
  3. Although unlikely, case #3 is still possible. CAD/JPY can remain suppressed at this 87 price level and creep upward deviously to test 89.30.

The difference between #1 and #2 could be subtle. But I couldn't bank on either one yet because the reward/risk isn't favourable at this moment. So I'm going to stay on the sideline and wait for a better price or for the signs to be clearer. On another note, I'm still keeping an eye on gold and Aussie. There should be a big one soon.

[caption id="" align="aligncenter" width="570" caption="CAD/JPY, daily"][][][/caption]

Posted 22 February 2010 in forex.

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