TSX TrendWatch Weekly

The S&P/TSX Composite Index rose a healthy +3.6% last week although, on a year-to-date basis, the index is essentially unchanged from January 1.

Seven of the ten sectors have positive trend values, however small. MATERIALS leads, followed by INFORMATION TECHNOLOGY and HEALTH CARE. As usual, the details on individual stocks within all sectors can be found in the DATA & CHARTS workbook.

The pattern in the chart above remains positive, although we would prefer to see %Up number of 60% or higher (which isn’t too far away from the current 53%).
More importantly, at the individual index or stock level, we want much higher consistency values. A strong trend value isn’t very useful if it’s there one week and gone the next. [New readers should review the Visitor Guide to understand the trend/consistency relationship and how both are related to volatility.]

——————————-

As usual we continue to look for other signs that we may be seeing a stock market bottom at these levels. Here are a few of them…

• Bond prices are falling.  Traditionally, investors flee to the bond market when there is a major slump in equities. It’s simply a matter of reducing risk.  The flip side is that falling bond prices may suggest that investors may be willing to accept a little more risk at this time by shifting funds to stocks again.  As that momentum builds, buyers will drive up prices again.
• Measures of global investor confidence are improving. Many measures of investor confidence are based on polls of investors’ intentions to buy equities. While better than nothing, these indexes provide no indication of whether there is any actual follow-through on those intentions. That’s why we prefer the State Street Investor Confidence Index.  State Street Global Markets bases it’s index on the actual purchasing behaviour of the world’s most sophisticated investors across 45 countries. It is essentially a measure of risk appetite; and the good news is that the latest monthly report shows a jump from a ten year low of 48 last December to 60 in January. We’ll be hoping for further improvement when the February reading comes out next week.
• Industry sectors that typically move up first are doing so now. We’ve already mentioned that MATERIALS and INFORMATION TECHNOLOGY are the strongest right now. These are two groups that typically lead after stock market bottoms. Improvements in our weakest groups, CONSUMER DISCRETIONARY and FINANCIAL SERVICES, would help confirm an overall reversal to the upside.

We will continue to monitor these factors going forward and provide an update now and then.