TSX TrendWatch Weekly

I tend to get nervous when the major indexes go up for too many weeks in a row… especially now, when so many pundits are calling this nothing more than a bear market rally.

The S&P/TSX Composite Index rose another 1.2% last week for a 7th consecutive weekly gain… bringing the year-to-date gain to +6.3%.  Contrast that with a year-to-date figure of -9.5% for the S&P500 or -10.6% for the Dow Industrials.

Our %-up figure in the chart above is now at a rarely ever seen 86%…  and that’s what worries me right now, believe it or not. We had no trouble writing off the spike in the first week in January as an anomaly, but this latest rally is much more systematic and orderly.

So, what’s wrong with that?  Well, whenever we’ve seen our %-up number get above 60% or so, we’ve also seen a significant proportion of individual stocks with trend values above 1%/week and consistency values above 70%.  Not a majority, of course, but somewhere in the neighbourhood of 5-15%… enough to find some good investment opportunities.

So, how many stocks do we have now of the “1/70″ variety?   Just 4 out of 200+.   Teck-Cominco (now called Teck Resources) has reported positive financial results. Lundin Mining is also doing well and is hedging its copper reserves. Astral Media and Canadian Tire round out that small group… also with better than expected financials.  But where are the others?  We should have something like 20 companies worth looking at right now.

Instead, what we have are a large proportion of companies with very small but positive trend values with minimal consistency.  That’s not necessarily bad, but it doesn’t inspire a lot of confidence either.  Proceed with caution!

INFORMATION TECHNOLOGY  and FINANCIAL SERVICES continue to be the leading sectors right now, which is the way it should be during an emerging bull market. INFORMATION TECHNOLOGY, unfortunately, has just 5 constituents, and Research in Motion pretty much determines where that index is going. You’d probably be better off buying RIM than an INFORMATION TECHNOLOGY ETF like XIT iShares.

On a more global basis, the State Street Investor Confidence Index rose this month to 79.6… a level not seen since last July when it peaked out at 84.  We like this index because it’s an actual measure of institutional investors moving their money into higher-risk assets (i.e. equities, instead of low-risk bonds, cash, etc.)  Other confidence indexes generally just poll investors about how they happen to feel that day about the investing in stocks.

So, in spite of our worries, we’ve still got a positive outlook, but aren’t committing much capital to Canadian equities just yet. We seem to be breaking above the trading range I discussed last week… and if that holds, we may start seeing a rush of all that money sitting on the sidelines into Canadian shares.

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