If we used the speculative and inflation/reflation-sensitive TSX-V index on the way up we should also use it on the potential way down. For newer subscribers, this was used as an early leader to the coming – and now pervasive – reflation trades.
We have been noting its weakness in weekly reports and that continues.
What’s more, its ratio to Canada’s senior TSX index has also been weak, showing no hidden inflationary/speculative juices flowing beneath the surface. Couple this with the recent pullback in long-term Treasury yields and inflation expectations and it is at best an indicator that the inflation/reflation trades are not yet out of the woods. This into a period where sentiment is extreme and by extension, so too are speculative interests across broad markets.
The major trends are up, but considering the mania going on across the globe that offers little comfort to a risk manager like myself. I’ll continue to manage risk as needed to hold profits. If these and other indicators hold and turn up, so be it. We’ll play the inflation game again. But I want these and other indicators to prove out first.
