New Section: "TSX WATCH" All Time Record Highs Achieved

"TSX WATCH" is a new section being added to MCM. Periodically, we will be technically analyzing the S&P/TSX Composite Index, which is considered the leading indicator of market activity for Canadian equity markets and also acts as a benchmark for Canadian funds, similar to the S&P 500 for American equity markets.

Generally, most Canadian equities and particularly resource stocks, move in unison with the S&P/TSX Composite Index. Anyone holding Canadian equities during the correction in May, probably suffered losses in their portfolio, as we saw stocks across the board take a beating.

The purpose of "TSX WATCH" is to analyze the TSX (S&P/TSX Composite Index) and hopefully anticipate broader market moves, which will trickle down to individual resource stocks that we can capitalize on.

Just prior to the massive correction, which began in May, the TSX was at record levels, reaching a high of 12,494.72. Today is especially exciting, as the TSX has catapulted to a new all-time high of 12,600.83 and continues to stay above the psychological level of 12,500.

The proceeding annotated weekly chart illustrates the channel, which the TSX has been trading in, and today, has just broken out of:



A channel is created by drawing two parallel trend-lines. In an up-trend, the upper trend-line acts as resistance and the lower trend-line acts as support. In the preceding weekly chart, you’ll notice that the TSX is at its upper trend-line. The following annotated daily chart shows that the TSX’s upper trend-line has officially been broken, called a break-out. If the TSX closes above its upper trend-line, which would also be above the psychological 12,500 mark, we may continue to see strength in the days to come.



The TSX is heavily correlated with commodities and oil. Today spikes in the price of oil, gold, copper and commodities across the board, as well as more consolidation in the resource sector, has been responsible for the rise in the TSX.

We will approach this breakout with skepticism and wait for further confirmation before becoming overly bullish. I tend to use a bottom-up approach for my “CORE HOLDINGS” and a mixture of bottom-up and top-down for my trading alerts. Using a bottom-up approach simply means that I look for quality companies and am not so concerned with the macro environment at the moment. This mitigates some risk, as quality companies with real prospects tend to out-perform in times of economic down-turn. However, as the old Wall Street axiom goes, “when the wind blows, even the turkeys will fly”. This just goes to show that when the markets are ripping, a top-down approach can be used with more confidence, as even the more speculative of the speculative stocks will do well, just based on over-all market sentiment.