Canada's TSX: taking a breather or gasping for air?

"How low can you go?"is a frequentwar cry oflimboingvacationers in the Caribbean.

But these days, Canadianequity watchers mightbeforgivenfor thinking thequestion better appliesto stock valuations.

Sincestudents went back to school on Sept. 2, investors have been dumping Canadian stocks, part of a mini-panic driven by slumping global commodity prices.

After ending August at almost 13,800, the TSX composite index fell out of bed, slipping6.9per cent in three trading days andclosing just above 12,800 on Thursday.

That has led investors, who were all smiles as the country's main stock index inched above 15,000 in the summer, to now fearwhere the market is headed in the fall.

"It's been very choppy.There is absolutelyno conviction out there," said Irwin Michael, portfolio manager at Toronto-based ABC Funds.

Oil jitters

The firesale on everything Canuck began as the limited fallout fromHurricane Gustavpushed downoil prices. OnSept. 2,crudedipped wellbelow $110 US in New York, the lowest price for a barrel of oil since early April.

That, in turn, spooked nervousinvestors who had purchased Canadian equities partly to reflect risingoil prices.

Next, U.S. economic datagave the impression that the American economy might be stalling, a situationthat could crimp demand for other Canadian commodities.

Equity holders began sellingin earnest.

"It's not just the hurricane, but the global economy and all the hot money that got into that sector," said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.

Drifting downwards

For investors now, riding out the financial hurricane will take a strong stomach, experts said.

For one thing, mostindicators point to a negativetrend amongthe world's major economies.

"We see a march to a global slowdown," said Adrian Mastracci, a portfolio adviser with Vancouver's KCM Wealth Management Inc.

Worldeconomic growth, hampered by sagging real estate demand inthe United Statesand higher oil prices everywhere, looks to befeeble at best, according to recent figures.

The Organisation for Economic Co-Operation and Development recently cut its growth projections for six of the seven G7 economies.Only the United States, at 1.8 per cent,will see its economy expand faster in 2008 than initially projected, according to the organization.

Overall, the OECD predicted that the G7countries will grow by 1.4 per cent in 2008.

"That's stall speed," Mastracci said.

Insuch anuncertain stock-trading world,manyinvestors are now sitting on their hands, adding to the volatilityon the Toronto Stock Exchange.

Finding Bottom

The problem for stock-pickers becomes figuring out whenequity values will hit bottom and begin to recover.

The old adage "buy low, sell high" is actually hard to follow, according to Michael at ABC Funds.

"We're starting to come across a lot of companies that are dirt cheap," he said. "Buying on the way up, however, is risky because it becomes very crowded."

Right now, few experts are sticking their necks out to pick a path for the TSX for the next four months or so.Negative feelings among investors probably meanequity markets will drift downwardsas opposed to plunging precipitously.

Mastracci's models are yielding a trading value for the TSX composite index with a high close to 15,000 and a low of 10,500 depending upon a variety of factors, he said.

The low end of his forecast entails a further drop in the index of 18 per cent below Thursday's close.

If that prediction comes true, what started out as an equity market limbo could wind up putting investors flat on their backs.