Not many seem to have noticed but the TSX-Venture Composite (resource heavy micro/small cap Canadian equity index) has started 2017 strong with an eight trading session winning streak (as of close of trading on January 4th, 2017):
This is the longest win streak for the TSX-V since April 2016 (9 sessions) and more importantly the current rally broke out of a downtrending channel which can be interpreted as a bull flag pattern. The August-December pullback was a garden variety 15% correction which found support at the 38.2% Fibonacci retracement of the entire January-August rally. Perhaps most importantly the correction by time (4 months) should have built up enough potential energy to fuel the next leg higher which could very well surpass the 2016 rally (82%) in both magnitude and velocity.
Zooming out to a longer term chart it’s not difficult to see the upside potential which exists after major long term bottom was put in place in January 2016:
To put a couple of levels into perspective, a move up to test the 2014 highs would equate to a ~35% rally from current levels, whereas a 50% retracement of the entire 2011-2016 decline would be a ~90% rally from current levels (surpassing the 2016 rally in magnitude).
There is a lot of meat on this resource bull market bone and shrewd traders can use the December 2016 low (710) as a downside reference (stop loss). ~10% downside vs. 35%-90% of potential upside is the sort of asymmetric investment return proposition that I am always on the look out for.
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