Insiders signal a simmering summer

As we kick off summer trading, insiders are suggesting it could be a hot one. While spring went out like a lamb with the INK Canadian Insider (CIN) Index falling 1.3% last week, it held a key support level at 1,071. For the year, the INK CIN Index remains up 3.8%, ahead of the S&P/TSX Composite which is essentially flat (+0.1%).

Looking ahead, the changing of the guard message we heard from insiders during the INK CIN Index's semi-annual rebalancing remains in place. Defensive strategies have been replaced by tilting towards stocks that would benefit most from a general rise in the price level and higher long-term rates.

INK Canadian Insider Index

1-week Return to June 22, 2015

The resilience of the Index last week to close above 1,071 was helped by a general pullback in the US dollar following the Federal Reserve's meeting on Wednesday. As we wrote in our US market commentary on Wednesday, the Fed was likely to try to keep a lid on the greenback in order to generate some domestic inflation momentum.

That is not to say there are not significant risks to the downside. For instance, a eurozone blunder over Greece could help to send the US dollar soaring again. That would throw a big bucket of cold water on commodity prices and other inflationary pressures such as import prices which the Fed seems to be watching closely. However, if American policy makers get their way, the euro and yen will eventually regain some ground this summer helping to keep a bid under commodities. If commodities are able to move up, the Fed will then be in a position to pull administered rates off the floor.

With the Fed working to push up prices and insiders acting like the US central bank will succeed at doing it, we would argue that investors should plan for hotter markets ahead. Of course, a market heating up does not come without some sweating.

This is a summary of a longer article which appeared  on INKResearch.com and the TD Direct Investing website before the open today

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