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

Everything you learn and read about financial markets seems so wishy-washy (call it subjective).

I’m a black and white sort-a-guy (and an accountant) and when it comes to dollars and cents my question has always been can’t the field of finance be more…. objective?

If you’re like myself…and why wouldn’t you be… then Model Price Theory [MTP] is made for you.

Welcome to the world of black and white!

And speaking of black and white, Canadian equities are in a BEAR market and that’s not being wishy-washy, it’s OBJECTIVE!

The last BEAR market in Canada was in 2007-08, and man, it was a doozy! I will be sporting those market scars for sometime. (See my blog “10 Things I Did in the Crash of 2008; That I Didn’t Do in 1987 and 2000”) However before I go into what a BEAR markets means for investors let’s review what transpired, in terms of market action, since my last blog (November 6, 2014) on the S&P/TSX Composite.

As a reminder here is the model price chart I included on my November 6th blog.

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).

I stated in this blog:

The first negative transit is usually the market testing or whether the index belongs in a lower zone, in this case between EBV+1 and EBV+2. Again, in general, the market (I’m talking about indices here) usually rallies above the EBV Line it just negatively transited.

And sometime later – could be months/quarters another negative transit will occur confirming the initial negative transit.

THIS SECOND NEGATIVE TRANSIT WOULD CONFIRM THAT THE CANADIAN MARKET HAS ENTERED INTO A BEAR MARKET.

Well, guess what…. we had a second negative transit!

Here’s a current view 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).

 

And it was a sneaky negative transit that occurred on December 4, 2014, which was a Thursday. I notified members of the Model Price community on Facebook through the following comment:

From the 'Comments Section' from the Model Price app on Facebook

From the ‘Comments Section’ from the Model Price app on Facebook

 

Friday, December 5, 2014 was also an interesting day that looked peaceful on the surface but according to Model Price Theory [MPT] the Canadian market through the S&P/TSX Composite Index communicated to those willing to listen. I wrote the following comment on Facebook:

From the 'Comments Section' from the Model Price app on Facebook

From the ‘Comments Section’ from the Model Price app on Facebook

And the following week, the week of December 8th to the 12th, the S&P/TSX Composite was down in round percentage numbers 4.5% (see model price chart above).

What This Means To You as Investors

Gravity will have an impact on all asset values (share prices) in Canada even top quality or respected big corporate names we can all list off the top of our heads. For those who know Model Price Theory [MPT] selling stocks that have a negative transit is a must, even those respected corporate names we all know. Investors must be vigilant about all Canadian shares to ensure loss of capital is kept to a minimum.

Where are we going, in terms of the Canadian equity market? Not sure! But until we see positive transits both in individual stocks and the S&P/TSX Composite Index I would be cautious with a healthy cash balance and wait and see where this market wants to go. I’m reminded of the great quote by Yogi Berra, “It’s tough to make predictions, especially about the future.” A negative transit is a negative transit meaning an investor should act accordingly, the future can take care of itself with or without my (and your) capital.

Conclusion

Model Price Theory [MPT] is giving you ‘objective’ information. ‘Black and White’ info that only an accountant would love. Yes, we are in a BEAR market in Canada but that’s not the end of the world. As I have said in previous blogs, you can make money in a BEAR market, it’s just you have to redouble your energy, efforts and your discipline if you choose to participate.

When I come to the office everyday, my first question of the day is: “What market are we in”? Up until last Thursday, December 4th, the answer was always “We are in a Bull market”! Now that answer has changed and I’m judging myself accordingly.

Hope you are as well.

One response to “December 2014 – S&P/TSX Composite Market Strategy Update

  1. cobbiangrant December 15, 2014 at 7:26 pm

    Am I the only one reading your articles Brian. To bad that some get left off at the station. Comprehension of the Model Price Guy’s philosophy is the only way that I got to own the station that people missed.! Thanks for the ride Brian.

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