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Canada Proprietary Trading Highs Reach All-Time Record

The Canadian stock market know at the Toronto Stock Exchange index (TSX) hit an all-time high on Wednesday in the wake of strong energy prices and an accommodative Bank of Canada. Strong momentum has driven the benchmark index to new heights, and if the TSX follows the S&P 500 index, the broad market could rally another 25% after closing above its 2008 highs.

Despite higher inflation in Canada, the governor of the Bank of Canada continues to defend a accommodative policy. The CPI is expected to accelerate to a 2.1% year over year rate in May, continuing the energy driven march higher. Governor Poloz recently defended the Bank's inflation outlook, saying the energy price driven CPI surge has matched expectations and will be temporary, while underlying inflation growth remains low. Energy shares have been the driving force behind the proprietary trading push of TSX (TSX), which should continue to perpetuate.

To defend the retention of April's focus on downside inflation risks, the Governor cited the evolution of downside risks to the U.S. and global situation compared to April. He said a full analysis of the U.S. in Q1 suggests there it was more than a weather story and that a bit of downside risk is emerging. Globally, he said that Europe, Ukraine, the ECB, China and Brazil have all seen risks emerge on the downside. This assessment is why the BOC wants to keep rates unchanged.

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The EWC is an ETF that follows the movement of the broader TSX. Momentum is strong as the MACD (moving average convergence divergence) index generated a buy signal in mid-June. This occurs as the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread.

The RSI (relative strength index) which is an oscillator that measures overbought and oversold levels, has moved higher with price action, reflecting accelerating positive momentum. The only caveat is that the RSI is currently printing at 76, which is above the overbought trigger level of 70, and could foreshadow a short term correction.