Banks Remain a Source of Vulnerability for TSX

Author Larry Berman

Posted: 20 May 2012 re-posted from etfcm

The banks remain a spot where the TSX is somewhat vulnerable as most of the weakness in the past few months has been commodity related. As money is coming out of the financials, we are seeing the gold stocks really bounce back from their extremely depressed levels (gold producers are at the lowest hedge ratio in years according to CFTC). We still see another 3-5% downside in the banks before they are oversold enough for a meaningful bounce (tied to the Grexit), but with systemic risk abound in Europe, the downside envelope could get pushed a little more than one might think if you’re desperate for dividends.

Bounce potential remains limited to 11,800-12,000 at this point with a retest of the 2011 lows a likely scenario in the coming months should Europe unfold in a less than ideal fashion, which seems likely. WTI has held $90 initially and could bounce back to $96-98 area before heading lower again. We still see mid to lower $80s as fair value at this point.



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