January 2014 – S&P/TSX Composite Market Strategy Update

 

I haven’t blogged about Canada for a while, so let’s have a peek.

First, starting with our model price chart of the S&P/TSX Composite Index.

S&P/TSX Composite Index with weekly price bars and EBV Lines (colored lines).

S&P/TSX Composite Index with weekly price bars and EBV Lines (colored lines).

Observables

1.  You can observe the S&P/TSX Composite Index hitting resistance back in the last week of October 2013.  After six weeks of ‘pounding at the door”, the Canadian market had a pull back in the middle of December – as annotated on the above model price chart.

2.  After the market pulled back in the middle of December, the Composite Index rallied back up to EBV+2, hitting resistance again.

3.  Newbies ask all the time, skeptically of course, whether our EBV lines work.  How perfect is this example?  Notice the lack of volatility in the market Index as it tries to squeeze its way through our calculated EBV level.  As you can observe from the above model price chart ‘something’ is preventing higher Index values being achieved.  Coincidence?  I think not!

4.  Clearly the S&P/TSX Composite wants to have a positive transit of EBV+2.  It can and will ‘pound away’ until the index is ready to achieve a positive breakout.  When will this occur?  I have no idea, but I have to admit it’s fun watching.  Isn’t it!

5.  Let’s get into some numbers.  EBV+2 for the month of January is 13,725.  EBV+1 is 11,533 with EBV+3, again for the month of January 2014 being 18,951.

If the Index does have a positive transit of EBV+2 – which seems likely – EBV +3 would be the next target for the index some 38% higher.  This possible future transit would give the Canadian equity market – S&P/TSX Composite Index – a good risk/reward for investors.

Conclusion

The S&P/TSX Composite Index is ‘pounding away’ under EBV+2.  If the US equity market – S&P 500 Index – pushes higher this will give the Canadian market impetus to ‘push’ through our mathematically calculated structural level EBV+2.  Readers should be looking at market Index levels for this possible transit.  This possible transit would be very bullish for Canadian equity investors with close support levels from EBV+2 and an upside target of 38% or EBV+3.

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