TSX losses deepen as oil sinks
STEVE LADURANTAYE
Tuesday, September 09, 2008
Oil, metals and agricultural products tumbled Tuesday, driving the S&P/TSX index down a further 3 per cent.
At 3 p.m. (ET), the index was off 384 points to 12,250.45. It has now fallen 1,600 points in the last week, and is at its lowest level since June.
The Dow Jones industrial average, which was up 1.5 per cent Monday on news of a federal bailout for Freddie Mac and Fannie Mae, was down 1.5 per cent.
Oil hit a five-month low of $102.50 (U.S.) after dropping $3.84 on the New York Mercantile Exchange on expectations that OPEC would leave its target productions in place after its meetings this week and oil rigs in the Gulf of Mexico appeared to be out of Hurricane Ike's path.
While cheaper oil is seen as a positive for the U.S. economy because it could spur consumer spending and help buoy the fragile economy, it's a bad thing for the commodity-heavy S&P/TSX.
“The problem in Canada today is oil falling off,” said Andrew Pyle, a Peterborough, Ont.-based investment adviser for Scotia McLeod. “But at the end of the day, I keep telling people that the TSX is just going through what other indexes have already. They all broke their lows, and this market wants to go back and test its own lows like everyone else.”
He said he “firmly believes” the market will hit 12,000 points if oil drops below $100 a barrel. For things to get better, he said, the oil market must stabilize and the U.S. housing market must show at least a quarter of recovery.
Until then, he said, investors are anxiously waiting for the next unexpected surprise that will take markets down further.
“There's always fear about the start of October,” he said. “Now everyone is worried that some financial event, like a bank failure, would trigger an even bigger selloff. That fear is really lingering in the market.”
Kenneth Norquay, a technical analyst at CastleMoore Inc., has discarded his charts and will rely on something a little more organic as he searches for a market bottom.
“Earlier this year, there were two periods of panic selling. They were in late January and on St. Patrick's Day,” he said. “Last week was a pretty sharp sell, but it didn't have that really visceral feeling. Until we can feel the losses in our guts, don't expect any strength in this market.”
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