Both S&P/TSX Composite and S&P/TSX 60 having a Positive Transit!

This is a positive.

Yes, I know the Canadian dollar has been getting slammed but our Canadian equity market likes what’s happening.

Let’s have a look at both indices, S&P/TSX Composite and the S&P/TSX 60 to see what is going on.

S&P/TSX Composite

Model Price Chart

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).

 

As you can observe from the above chart the Canadian market rallied up to EBV+2 back in October and November of 2013.  Had a nice pull back in December and rallied through EBV+2 in January.  Yes, it’s hard to see – a little nub on the chart – but the market is sniffing the air in a different higher zone making Canadian equities attractive on a risk/reward basis.

S&P/TSX 60

Model Price Chart

S&P/TSX 60 Index with weekly price bars and EBV Lines (colored lines).

S&P/TSX 60 Index with weekly price bars and EBV Lines (colored lines).

 

To my mind it’s always great to have confirmation of a price or index move.  Well the same positive transit occurred on the large-capitalized Canadian index, the S&P/TSX 60, as you can see above.

Conclusion

The Canadian equity market is having a good January – so far.  Even though our equity market has been lagging behind the S&P 500 – valuation wise – this positive transit is a signal that fundamentals are improving for Canadian companies.  In order for each respective Canadian index (mentioned above) to reach EBV+3 all sectors of the Canadian equity market have to participate.  The obvious sectors to play ‘catch-up’ are the 2013 lagging sectors, principally Oil and Gas and Materials (gold) sectors.  Global economic growth should help these lagging sectors play ‘catch-up’ in 2014.

Could both indices have a negative transit of EBV+2 in the near future?  Absolutely.  However the subsequent positive transit would be very bullish, qualifying this formation as a ‘Break-out Pull Back’ – one of my favourite formations.  In other words, the above indices have a positive transit – that has already occurred – a correction, sending each index below EBV+2 and having another positive transit of the same EBV+2.  To me this would confirm that the Canadian equity market clearly believes, valuation wise, it belongs in the zone between EBV+2 and EBV+3 giving investors future positive rates of return.

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