March 2015, S&P/TSX Composite Market Strategy Update

Every time I look at our model price chart of the S&P/TSX Composite Index I see a visual. What is that visual picture you ask?

Well, first let’s look at the model price chart of the aforementioned Canadian index.

S&P/TSX Composite Index with weekly price bars and EBV Lines.

S&P/TSX Composite Index with weekly price bars and EBV Lines.

As a reminder we aggregate all companies in the S&P/TSX Composite Index into one chart on a market capitalized basis (like the S&P/TSX Composite Index itself), so we can see where the market – S&P/TSX Composite – is trading relative to its EBV lines.

For people new to Model Price Theory [MPT] the index value or price can move within an EBV zone with no real consequence. However when a transit occurs – index value or equity price crosses one of our parallel lines – an EBV line, either positive or negative this gives Model Price users a signal that fundamentals are improving or deteriorating, respectively.

This is the visual I have in mind…

Hanging in there!

Hanging in there!

The Canadian market like this poor little kitten is trying to hang in there. Trying to hold on to EBV+2. Yes, this Canadian market index trades a little above and below this EBV line and has yet to make up its mind where it wants to go.

And this stalemate – between the buyers and the sellers – may last for sometime into the future.

The risk is the S&P/TSX Composite Index falls to EBV+1 or over 16 percent from the March 6th close that I have annotated on the above model price chart.

The other question that should be asked: Can the Canadian market have the strength to rally up to EBV+3 or 20,571 (approx. 38% from the March 6th close). Maybe! Though I think the probability would be low but must be considered. As we all know kittens have a habit of defying gravity sometimes. If the most bullish scenario occurs in the U.S. equity markets (see my March blog post on the S&P 500) then the Canadian equity markets would certainly follow the U.S. lead in terms of expanding equity valuations.

So we wait.

The Canadian market is at support with one of our structural EBV lines, and that makes sense, and it’s waiting. So we have to be patient as well.

Not earth shattering analysis, but sometimes boring is good.

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