by winston » Fri Oct 14, 2016 10:35 am
not vested
A Second Chance to Buy the Loonie
By Eric Fry
"There are no second chances in life, except to feel remorse," author Carlos Ruiz Zafón remarks in his worldwide best-seller The Shadow of the Wind.
It's true. Life not only provides second chances to feel remorse, but also third, fourth and fifth chances.
The financial markets are similar. They offer plenty of opportunities to feel remorse. But they also offer abundant second chances to succeed.
In fact, the chart below suggests that investors are getting a second chance to buy the Canadian dollar.
The Loonie Takes a Swan Dive
The Canadian dollar, also known as the "loonie," is in the midst of a five-month sell-off. This is what second chances look like. They are deep corrections that halt a bull market in its tracks... temporarily.
Even the most powerful of bull markets will suffer frightening corrections along the way. During the U.S. stock market's spectacular bull market of the last 35 years, the S&P 500 delivered an annualized total return of more than 11%.
But along the way, it suffered a 31% crash in 1987, a 47% bear market in the early 2000s and a 52% implosion in 2008 and 2009.
Each of those sell-offs provided a second chance - a scary, unnerving second chance.
No investor can ever know exactly when a particular sell-off has exhausted itself. That's why buying into a correction is far more art than science. So let's put on our artists' smocks and take a look around.
At this moment, the foreign exchange markets appear to be offering a compelling second chance... to buy the Canadian dollar.
The loonie has been ratcheting lower against the U.S. dollar for the last five months. This sell-off has erased about 40% of the gains the loonie achieved between January and April.
In the jargon of technical analysts, this correction has dragged the loonie down to "key support" around the 75-level, which means the currency should stabilize somewhere around this level... at least temporarily.
Technical indicators aside, the loonie seems likely to find support from at least one important fundamental influence.
As a "resource currency," the Canadian dollar tends to move in sync with commodity prices... especially with oil prices. But during the last five months, that hasn't happened. The loonie has dropped 4% against the dollar, even though the CRB index of commodity prices has advanced 5% and the oil price has soared 15%.
These divergent trends seem unlikely to continue.
As crude oil and most other commodities continue rebounding from the lows of their wicked 2011-2016 bear market, the Canadian dollar is likely to follow suit.
One of the easiest ways to make a play on the Canadian dollar is to buy the CurrencyShares Canadian Dollar ETF (NYSE: FXC; price: $74.63). This actively traded ETF tracks the Canadian dollar's value against the U.S. dollar. For investors looking to leverage their bets on the Canadian dollar, options on the Canadian Dollar ETF are also available.
Buying the Canadian Dollar ETF at today's relatively depressed level looks like a second chance that is more likely to produce delight than remorse.
Source: The Non-Dollar Report
It's all about "how much you made when you were right" & "how little you lost when you were wrong"