Always consider hidden risks
Canadian and US Energy Sector: Canadian Oil Assets at Huge Discount ?
July 29 ( From Trading View )
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The Canadian Economy has been caught in a Perfect Storm in 2014:
World demand slowing,
Commodity prices weakening and
Canadian consumers extremely leveraged...
And the Canadian Markets reflect it...
On a relative basis, the last time it was that cheap for the Canadian Oil Energy Sector was more than 14 years ago.
( See 2nd chart below )
And for the Canadian Dollar, it was in August 2003.
Canada’s economy performed relatively well in the aftermath of the financial crisis, as low borrowing costs spurring a credit boom, much
of which was used to buy houses.
But with household debt at record levels, and Canadian consumers really stretched financially, they are beginning to pullback in terms of consumption to more normal levels.
Commodity prices have been declining in 2014 and didn t help at all the Canadian Situation... And the oil price fell tremendously lately, making the Canadian markets to underperform the US lately. Canadian Oil Assets are extremely Cheap on a relative basis to US Oil Stocks, levels not seen back to more than 14 years ago...
To be able to observe the huge difference in performance, let s look at it now on a ratio basis.
What I did is taking the XEG ETF times the Canadian Dollar Futures divided by the XLE ETF to give us a valuation from a US investor considering the Canadian Market with the currency risk.
As we may observe, Valuation came back to the level of more than 14 years ago and in the process of bottoming out as extreme oversold conditions of this week as shown by the chart below...
But for a long term play, we need a confirmation that we break on the upside the 50 DMA ( Day Moving Average - Green Line ) on the chart below...
Cdn XEG ETF times the Canadian Dollar Futures
/ The US XLE ETF
50 DMA ( Day Moving Average - Green Line )
Canadian and US Energy Sector: Canadian Oil Assets at Huge Discount ? $OIL, $CL_F, $XEG, $XLE, $MACRO, $STUDY, $USDCAD $FXC, $6C_F
First, let s see on a weekly chart that began in January of 2009 three financial data:
1) XEG ETF: iShares S&P/TSX Capped Energy Index ETF
2) XLE ETF: Energy Select SPDR
3) Canadian Dollar Futures
It is obvious that since the end of 2011, the US XLE outperformed the Cdn XEG by a strong margin as shown by the chart below...
Cdn XEG ETF ( Candles )
US XLE ETF ( Grey Area )
Canadian Dollar Futures ( Red Line )