How Low Can the TSX Venture Fall?
Thu, Apr 18, 2013
Tsx Venture Exchange Quotes
The TSX Venture Index has fallen 15% in the past two weeks. The move caps off a 60% slide since topping out in March 2011.
Of course, a lot has changed since 2003. Gold prices have more than tripled and oil prices have more than doubled over that period. But the TSX Venture Index is at the same level it was in 2003.
The TSX Venture Index has fallen so much it’s on the verge of hitting its 2008 lows too when massive forced selling forced sellers out at any price.
That’s all bad. But here’s it could get much worse. Here’s why.
Right now there are no catalysts for an immediate turnaround. With a global recession likely underway and gold and Commodities Prices sliding, there’s not much to get excited about with the junior resource stocks which dominate the TSX Venture Exchange.
The chart below shows the TSX Venture Index has already fallen back to 2003 levels:
Furthermore, the data we look at here at Contrarian Insights which helped us largely sidestep this bear market provides a surprising fact about how much lower the TSX Venture market could fall.
As we’ve mentioned before the TSX Venture Index is not a good long-term proxy for the true performance of the TSX Venture Exchange.
That’s because most of the companies listed on the exchange generate no revenue or earnings. The only way they survive is issuing more shares and diluting the value of current shareholders. This dilution is not adequately represented by the TSX Venture Index.
As a result, we look at the total market value of the TSX Venture Exchange. It’s simply a much more accurate gauge than the TSX Venture Index.
That’s where we see the real risks that remain in these stocks.
If you look back at the 2008 market lows, the TSX Venture hit a low just under 800 points. At the time the total value of all the TSX Venture Exchange-listed companies fell to a low of $16 billion.
Today the TSX Venture Index sits at 930. Meanwhile, the total value of all stocks listed on the TSX Venture Exchange is still a relatively robust $32 billion.
So using this more accurate measurement, the real downside risk right now in the TSX Venture is another 50%.
Granted, it’s tough to imagine that happening. But it was also tough to see Apple (NASDAQ:AAPL) dropping from $700 per share to less than $400 today and gold falling from $1900 an ounce to $1300.
Right now might be a good time to buy TSX Venture stocks. But always keep ample cash on hand for the potential great time to buy them which may come together in a few months.
Executive Editor, Contrarian Insights
The Group of Big Investors in United States.
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