Canada underperformance extended

March 9, 2018

The EWC to SPY ratio, which highlights the relative performance of Canadian equities (iShares MSCI Canada ETF [EWC]) relative to their U.S. counterparts (SPDR S&P 500 ETF [SPY]), has hovered between 0.10 and 0.12 over the past two years. However, the ratio has dropped hard since September 2017, and it is currently flirting with the low end of its two-year range. The zone should offer decent support for the ratio, especially since we note a positive relative strength index (RSI) divergence on the chart (i.e., the 14-day RSI has been recovering, while the ratio has continued to fall). If the support area holds in coming days, we expect a bounce toward the 0.1075 level. A move above 0.11 would, in our view, increase the odds of a recovery toward the high end of the band (+20% from here).