The bullish commodity sector suggests more upside for TMX Group.
The Stock:TMX Group Inc. (X-T) Recent Price:$30.70
The Trend
The kids are back at school - and so are investors. Although the S&P/TSX
composite index is only marginally above its level of three weeks ago,
trading activity on the Toronto exchange has elevated dramatically.
Weekly TSX trading volume has risen 44 per cent above the average weekly
volume of the third quarter prior to Sept. 1. And during the month there
has been a big increase in the number of stocks with high weekly trading
volume relative to those with low trading volume - four times the ratio
of the summer period. But while the volume of stocks traded has gone up,
the number of weekly transactions over the recent period is up only 11
per cent from the third-quarter average. Apparently, active investors
are in a trading mood and intent on doubling down.
Driving the heightened interest are metal mining and precious metals
stocks. The S&P/TSX Mining index is outperforming the broad market by 20
per cent in the past three months, while precious metals stocks are
powering ahead as the price of gold scales to new nominal highs. Trading
volume in these sectors is up about 70 per cent from summer levels as
momentum traders pile into both junior and blue chip mining stocks.
Mining stocks are attracting the speculative crowd, pushing price
performance gains in the small and mid-cap miners higher than that of
the big sisters in the group. The S&P/TSX Small Cap index has
outperformed the broader market in each of the past three weeks, while
the S&P/TSX 60 index has underperformed the S&P/TSX composite index in
the same periods - a comparison reflecting the preference for junior
mining stocks in September.
This uptick in trading volume and bullish price moves in commodities may
mean an Indian summer ahead for more than just the shareholders of these
resource sectors. Financial intermediaries taking trading orders have
plenty of reason to be glad that investors are more aggressive.
Independent Canadian wealth management firms are few, but their share
prices are reflecting the market buoyancy. Shares of Canaccord Financial
Inc., largely benefiting from its merger with Genuity Capital Markets
but also indicating improved stock market sentiment, are Stock Trends
Bullish. GMP Capital's stock jumped 10 per cent last week, while Jovian
Capital surged 12 per cent. Shares of DundeeWealth are also showing
recent improvement. A continuation of the September market rally in the
mining sector puts a shine on these financial services stocks, too.
The Trade
When the Canadian equity market gets lively TMX Group merrily sits at
the cash register. Operating the Toronto Stock Exchange and the Montreal
Exchange, as well as the Canadian Venture Exchange, TMX's top line
revenue feeds off improved investor sentiment and trading activity. Not
surprisingly, shares of TMX Group are rallying. The stock turned Stock
Trends Weak Bearish - a signal that its price has moved above its
bearish trend - at the beginning of the month and is a current stock
pick. Trading volume spiked last week as shares added another 4 per cent
to the recent rally off its now positively trending intermediate-term
trend line. Much of last week's trading volume tended toward bigger
players - average traded value of the stock was about three times its
third-quarter average. The stock's solid finish above $30 on Friday is
another positive signal for trend followers interested in going long TMX.
The Upside
Bullish commodity investors should give TMX added lift in the final
months of 2010. A 10-per-cent gain to above the stock's January peak
would be the objective on this trade, but a more bullish interpretation
of the Canadian equity market might make a trip to its October, 2009,
high near $36 the rewarding result.
The Downside
Market timing shareholders should make room for a retreat in the stock
price. A drop below trend line support at $29 can mark an early exit.