Gold stocks are on fire. Oil stocks are on fire. Lithium stocks are on fire. The exchange everyone loves to hate, the TSX Venture, is on fire.
Excuse the repetition, but the battered and abused junior resource exchange which hit a devastating low of 466 in late-January, less than 3 months ago, has been levitating above its doubters and critics. To put it mildly, almost every mining stock on the exchange has caught some form of a bid.
TSX Venture tops all exchanges since January
The TSX Venture has been one of, if not, the best performing exchange in the world in 2016 (at least from its bottom in January).
TSX Venture – 3 Month Chart
The TSX Venture hit 466.43 on January 20th. Since then, the market has rallied some 29.3% to close at603.94 today. The Venture closed at 525.66 on December 31st.
There is no doubt the exchange was slowly diversifying into tech and healthcare-related issuers for much of 2014 and 2015, but still had a roughly 60% weighting to mining plays at the end of 2015. The resource sector remains the exchanges and Canada’s bread and butter. With a weak dollar boosting exports, commodities are getting some interest. Many of the top calibre mining stocks, particularly in the gold and lithium spaces, have doubled and tripled from recent lows on many millions of shares traded (the examples are endless); additionally, the forgotten, previous ‘zombie’ type issuers have also been supplying the Venture with some much needed firepower of late.
Mining stocks lead TSX Venture higher
Four of the top ten most actively traded TSX Venture stocks Friday rallied 100%. All four were from the mining sector. Usually 100% gainers consist of penny stocks, trading for 1 or 2 cents and reside in the TSX Venture gainers section on no more than a few thousand shares traded. While a few 2-cent stocks did creep into the most liquid, they did so on millions of shares traded.
While easy to overlook. This represents speculation. It represents retail investors throwing flyers at previously thinly traded penny stocks. That hasn’t happened in the mining sector (across a broad number of issuers) for years. Translation: if some investors will buy these types of shares, many investors will buy slightly larger, more advanced mining companies on the exchange.
In 2012, Pinnacle’s Aaron Hoddinott chronicled the history of the TSX Venture and its boom bust nature in TSX Venture Exchange…Buy or Sell? What is about to follow is an excerpt that shines light on why the current TSX Venture rally could have some serious legs:
“Crashes and rallies are a part of its genetic make-up. No one will deny that it’s a boom/bust index and if timed well (doesn’t have to be perfect), it can make investors fantastic returns in very short periods. This is what will keep investors coming back to the TSX Venture – the greed factor. Let’s look at the TSX Venture’s historical averages:
Average loss (in percentage terms) during a correction (peak-to-trough): -36.25%
Average duration of a bear market in the TSX Venture: 5.78 months
Average gain after a correction (trough-to-peak): 98.08%
Average duration of a bull market in TSX Venture: 11.83 months“
Click here to read more of TSX Venture Exchange…Buy or Sell?. This article was originally published in late-April 2012.
If the average bear market on the TSX Venture, which, prior to 2012 had lasted 5.78 months (this one has lasted roughly 5 years), results in a 98% gain, it begs the question what the ongoing rally (29.3%) could turn into. The Venture is in uncharted territory, but is rebounding from the worst bear market in its history.
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Resource stocks dominate liquidity on TSX Venture
Only 4 of the top 50 most liquid stocks on the entire TSX Venture did not fall into the resource (mining or oil) sector Friday. Two tech stocks and two marijuana-related stocks were the only four issuers not considered to be resource stocks in the top 50 most liquid. Previously liquid tech and biotech deals have been completely forgotten as mainstream investors begin to believe the resource sector may have bottomed. Knock on wood…
TSX outperforms on weak Canadian Dollar
The TSX has been performing well as oil stabilizes and the weak Canadian dollar spurs investment. Even when compared to two of its commodity currency peers, Australia and South Africa, Canada is outperforming.
source: http://www.yardeni.com/pub/peacockglstkytd.pdf
The mining heavy exchange of the TSX Venture has risen two months in a row – up 30% since January. With many issuers still looking cheap from a historical perspective, and the exchange known for massive swings to the upside, the current move could be a long way from over. It’s been a long, long-time coming, but it’s time to enjoy another TSX Venture bull market.
This article represents solely the opinions of Alexander Smith. Alexander Smith is not an investment advisor and any reference to specific securities in the list referred to in the article does not constitute a recommendation thereof. Readers are encouraged to consult their investment advisors prior to making any investment decisions. The information in this article is of an impersonal nature and should not be construed as individualized advice or investment recommendations.
