Trend: Canadian financial stocks retreated last week along with the jittery resource sectors. The iShares S&P/TSX Financials Index E.T.F. dropped 5% and its shares are now trading at the 13-week moving average trend line. Financials make up a significant chunk of the TSX market cap and figure prominently if Canadian investors expect to navigate safely through commodity sector volatility. The energy, materials, and industrial sectors turned Stock Trends Weak Bearish last week - a sign of concern for the bullish TSX trend that developed in the second quarter. However, financials stocks have fared a little better in the recent market pullback - they have outperformed the broad TSX market in each of the past four weeks.
The Trade: Standing notably firm in last week's turbulence was Canadian Imperial Bank of Commerce , its share price closing the week above $57 after a mid-week drop to $55. The stock's 0.8% loss last week looked a lot better than the 5-6% dips the other Big-Five bank shares swallowed. Investors can measure relative performance of industry stocks to look for leadership in a volatile market. CIBC's stock has been Bullish since early June and remains in a position of trend line support. Investors can buy CIBC on the stock's relative strength in the current market weakness and commit to the financial sectors bullish trend.
The Upside: Stock Trends continues to be committed to a bullish scenario for the commodity stocks and the TSX, a crucial evaluation for the financials. The July market correction is testing the trend support for these important sectors. If the trend forces factor in now, a rebound is due. CIBC shares surged to $61.36 at the peak of its spring rally. A rally off the current trend line support level should move CIBC back to that resistance point. Should the global economic picture improve after this summer's market correction, the stock has an opportunity to advance 10-12% to the $65 area.
The Downside: Like many stocks that are being challenged by market jitters about the economy, CIBC's chart tells investors that now is the time to make a commitment to the trend that developed in the spring. However, if trend line support does not stabilize the stock now, investor's should be prepared to exit. If the stock drops below $54, CIBC will turn Stock Trends Weak Bullish, indicating the trade is at risk of not moving in the desired pattern. The past month has been tough sledding for stock pickers and successful long swing trading (buying stocks for periods of weeks or a few months) was handicapped by the market correction. A number of the stocks profiled in this column since the beginning of May have been stopped out by the volatile action. Timing the market has its risks - including transaction costs - but exercising an exit strategy helps contain losses. The S&P/TSX Composite Index is down almost 10% since its June high a month ago - any losses in an active trading record should be measured against that fall.
Skot Kortje has been analyzing stock market trends for 15-years using trend analysis. His Stock Trends indicators have been published by The Globe and Mail since 1995. For more go to http://www.stocktrends.ca/