The Stock: TMX Group Inc.
Recent Price: $30.70
The Trend: The kids are back at school - and so are investors. Although the S&P/TSX composite index is only marginally above its level of three weeks ago, trading activity on the Toronto exchange has elevated dramatically. Weekly TSX trading volume has risen 44 per cent above the average weekly volume of the third quarter prior to Sept. 1. And during the month there has been a big increase in the number of stocks with high weekly trading volume relative to those with low trading volume - four times the ratio of the summer period. But while the volume of stocks traded has gone up, the number of weekly transactions over the recent period is up only 11 per cent from the third-quarter average. Apparently, active investors are in a trading mood and intent on doubling down.
Driving the heightened interest are metal mining and precious metals stocks. The S&P/TSX Mining index is outperforming the broad market by 20 per cent in the past three months, while precious metals stocks are powering ahead as the price of gold scales to new nominal highs. Trading volume in these sectors is up about 70 per cent from summer levels as momentum traders pile into both junior and blue chip mining stocks. Mining stocks are attracting the speculative crowd, pushing price performance gains in the small and mid-cap miners higher than that of the big sisters in the group. The S&P/TSX Small Cap index has outperformed the broader market in each of the past three weeks, while the S&P/TSX 60 index has underperformed the S&P/TSX composite index in the same periods - a comparison reflecting the junior mining stock preference in September.
This uptick in trading volume and bullish price moves in commodities may mean an Indian summer ahead for more than just the shareholders of these resource sectors. Financial intermediaries taking trading orders have plenty of reason to be glad that investors are more aggressive. Independent Canadian wealth management firms are few, but their share prices are reflecting the market buoyancy. Shares of Canaccord Financial Inc., largely benefiting from its merger with Genuity Capital Markets but also indicating improved stock market sentiment, are Stock Trends Bullish. GMP Capital's stock jumped 10 per cent last week, while Jovian Capital surged 12 per cent. Shares of DundeeWealth are also showing recent improvement. A continuation of the September market rally in the mining sector puts a shine on these financial services stocks, too.
The Trade: When the Canadian equity market gets lively TMX Group merrily sits at the cash register. Operating the Toronto Stock Exchange and the Montreal Exchange, as well as the Canadian Venture Exchange, TMX's top line revenue feeds off improved investor sentiment and trading activity. Not surprisingly, shares of TMX Group are rallying. The stock turned Stock Trends Weak Bearish - a signal that its price has moved above its bearish trend - at the beginning of the month and is a current stock pick. Trading volume spiked last week as shares added another 4 per cent to the recent rally off its now positively trending intermediate-term trend line. Much of last week's trading volume tended toward bigger players - average traded value of the stock was about three times its third-quarter average. The stock's solid finish above $30 on Friday is another positive signal for trend followers interested in going long TMX.
The Upside: Bullish commodity investors should give TMX added lift in the final months of 2010. A 10-per-cent gain to above the stock's January peak would be the objective on this trade, but a more bullish interpretation of the Canadian equity market might make a trip to its October, 2009, high near $36 the rewarding result.
The Downside: Market timing shareholders should make room for a retreat in the stock price. A drop below trend line support at $29 can mark an early exit.