Sound bites: the gaping road to a summer rally

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The case for a summer rally in Canadian stocks took a hit Thursday. The INK Canadian Insider (CIN) Index gapped down at the open, below its 200-day moving average, and continued to lose ground during the day to close at 1,157.05. Its 200-day moving average sits at 1,161.62. At least the Index managed to close off its lows for the day and above the recent low of 1,155.88 set on May 18th.

As we wrote yesterday in our free download feature Is a Canadian summer stock breakdown unavoidable?, for us to have confidence that Canadian stocks can resume an uptrend in the short-term, we want to see the INK CIN Index retake its 150-day moving average. The first order of business for the bulls is for the Index to get back above its 200-day moving average which could be achieved by closing yesterday's gap down. Failure to achieve this quickly will resign us to the expectation of more short-term weakness or a period of uninspiring consolidation.

I discussed the technical outlook for Canadian stocks with Jim Goddard at Howestreet.com Thursday. In the interview, I suggest that Canadian stocks have their work cut out for them as investors grapple with the cross currents of Fed tightening and decent growth out of China.

The discussion starts off by tackling the Bank of Canada's belated admission that the Canadian economy is showing signs of strength. Unfortunately, the central bank has left interest rates too low for too long which is complicating the process of getting monetary policy back to normal. That said, it is important that they get out of crisis mode as soon as is practically possible.

In particular, moving interest rates up to more normal levels will do more for housing affordability in Vancouver and Toronto than a laundry list of government rule changes and expensive direct interventions in the housing market.

Listen to or download the full interview below. You can also catch it on Howestreet.com's YouTube channel.

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