A Negative Divergence To The Inflationary Reflation Trades Continues

September 17, 2021

Back on June 21, we compared inflation with the fading CDNX/TSX Ratio using this chart (updated here). Nearly 3 months later, while inflation expectations look poised to turn back up TSX-V/TSX continues to robo-trend down.

Da ‘V’ is not an indicator in a vacuum, but its relationship to the senior Canadian TSX index has been in correlation with inflation and speculative inflation trades over the years. It peaked and turned down in February leading to the summer cool down in inflation expectations and many inflation/reflation trades, and a flattening in the broad commodity indexes/ETFs, as oil and gas kept them aloft.

But at some point, da ‘V’ should either begin to out-perform the TSX or the other stuff should fold up its tent for a while and drop. The weekly view shows the longer-term correlation between the ratio and commodities and inflation expectations. I’d watch the ratio to either confirm the others by breaking the handle upward or hopefully if you won't want to buy the next round of inflation at a discount, deny them.

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