Is the TSX Venture Diverging from Marijuana Stocks?


After falling below 700 the previous three trading days, only to rebound and close above the key watermark, the Venture finally gave in. Despite bouncing from a low of 695 earlier in today’s session, the Venture closed at 698. Today, August 8th, marks the first close below 700 since June of 2016 – about 26 months ago. The majority of TSX Venture traders are at the beach right now, but one cannot underestimate the psychological effect of a sub-700 Venture. The bear market, which began earlier this summer is intensifying with the Venture now down almost 26% from its January highs.

Venture Volatility Slows as Liquidity Dries Up

How bad has Canada’s junior exchange performed in July and August? The TSX Venture’s biggest up day in the past month came on July 18th when it moved 0.63% higher. Its next best day was a 0.32% increase. Better than two of every three trading days has been a down day since mid-July. Granted the Venture is in the heart of its seasonal weakness period, it is now at multi-year lows. So, if the Venture is prepping for a bounce into the fall, we should see it under way by the end of August.

TSX Venture Traders on Holiday as Volume Dries Up

The exchange has been averaging just 50-60 million shares per day. A far cry from the 100 million plus per day when the index traded well above 900. With volume cut in half since the beginning of this year and marijuana stocks stagnant, the exchange is unsurprisingly drifting lower.

TSX Venture Divergence from Marijuana Stocks?

Something unique is happening on the Venture. For the first time in almost a year, the exchange appears to be diverging from the Canadian Marijuana Index. While the CMI is more volatile than the Venture, it moves in the same direction – at least it used to. This is a huge development for Venture investors and something I am going to monitor closely over the coming weeks. Wednesday saw the Venture decline 0.29% compared with a 1.11% increase on the CMI. Check out the below 5-day charts for each index.

TSX Venture – 5 Day Chart

Venture declines

Canadian Marijuana Index – 5 Day Chart

TSX Venture traders watch CMI divergence

In March we published The Biggest Influence on the TSX Venture to highlight the growing correlation between the exchange and marijuana stocks, writing,

“At the moment, no sector is influencing the TSX Venture the way marijuana-related stocks are. One can make the argument that no sector has influenced the direction of the exchange like this in over five years. As the blockchain pretenders fade to black, and junior miners remain subdued, volume and interest is squarely on marijuana-related issuers.”

If the Venture is diverging from the marijuana sector, which I believe is premature to assume, it is morphing into a different exchange. For TSX Venture traders and average retail investors alike, this is a big deal. It does this every 6 to 18 months as capital and liquidity are almost always finding a new home or favourite sector on the exchange known for its booms and busts. Certainly, with the exchange below 700 we are in the midst of another bust.