If you’ve been a subscriber to Boom & Bust since the start of 2012, you likely already know that the Canadian real estate market is a ticking time bomb.
I recommended betting against the country’s economy – via a short sell in the iShares Canada ETF (NYSE: EWC) – in our February 2012 issue. And while the position hasn’t accrued big profits just yet, this chart shows the potential gains you could grab in the event of a Canadian real estate collapse.
We think it’s a matter of “when,” not “if.”
A few things to note…
First, the white crosshairs mark our Boom & Bust model portfolio entry at $29.10 per share on February 28, 2012. Since then, the share price has clearly not collapsed. Yet, it hasn’t shown any strength either. While the S&P 500 is up more than 18% this year, EWC is down about 1% after being underwater by 8% in June.
Looking ahead, I’m watching the $25 level closely. This price marks the neckline of the familiar head and shoulders patternrn (green circles are shoulders; blue circle is the head).
Technical analysis says when this level is broken to the downside, the odds of a significant decline are very high. And, you can expect a drop, in this instance, of about $15 per share. That drop would put shares of EWC around $10.
Yet even a fall to just $14 per share – the March 2009 low – would offer profit potential of roughly 50%!
One thing is for certain: For every boom… there’s a bust!
Canada’s bust is coming.