TSX TrendWatch Weekly

Regular readers will know that these weekly updates are intended not only to comment on the stock and index action over the past week, but to inform and educate about the bigger picture. In short we feel that you need to look at the performance of the  S&P/TSX Composite Index stocks and sub-indexes relative to US and global markets and other forms of investing. We continue that tradition this week by talking about little known stock index that we like to call “the friendly ghost”.But first, let’s run through the basic numbers for last week.

WEEKLY REVIEW… The S&P/TSX Composite Index staged a +2.4% gain last week after the overdue retracement of almost -5% the previous week. In short the previous week’s decline didn’t induce a selling panic, and investors took advantage of the pull-back to do some more buying. 81% of S&P/TSX Composite Index stocks still have positive trend values based on their 10 week moving averages.

The S&P/TSX Venture Index  outperformed once again… rising +3.1%, bringing its year-to-date figure to +37.6% (compared to +11.2% year-to-date for the S&P/TSX Composite Index).  Premium Service subscribers have no doubt been taking advantage of this.  They have weekly trend and consistency values for roughly 600 Venture companies, plus about 1300 “big board” TSX listings.

From a sector perspective, MATERIALS, ENERGY, and FINANCIAL SERVICES are holding their leadership positions. INFORMATION TECHNOLOGY is usually up there too, although it fluctuates considerably due to the small number of companies in the index. INDUSTRIALS are continuing to show strength as well. As usual, the details are in the DATA & CHARTS workbook.

South of the border US stocks didn’t do as well. The Dow Industrials were virtually unchanged (+0.1%), the S&P500 rose just +0.5%, and the NASDAQ was up +0.7%.

THE FRIENDLY GHOST… This week I’m going to talk about a little known stock index that you’ll never see reported in the Canadian business media, or any other business media for that matter…. the NASDAQ Canada Index (CND, or ^CND via Yahoo! Finance). First, a bit of history.

Nasdaq Canada is a wholly owned subsidiary of The Nasdaq Stock Market Inc. and was created to extend Nasdaq’s North American trading platform within Canada. Nasdaq Canada was intended to enhance and ensure Canadian investors’ immediate trading access (including real time availability of all relevant data) of all Nasdaq securities and issuers with the ability to raise capital more efficiently. It was also there to help Canadian companies to obtain NASDAQ listings.

The subsidiary was launched in November 2000 with the opening of an office in Montreal.  For reasons that are less than clear, the effort was a disaster and the Montreal office was closed in July 2004.  NASDAQ Canada operations, such as they still exist, have been moved to New York City.

As part of the original NASDAQ Canada launch, a NASDAQ Canada index has created and continues to be reported to this day… if you can find it. It consists of a weighted-average of Canadian stocks with listings on the (US) NASDAQ exchange.  Right now, there are 48 companies included.

So, why should we care about this mysterious “ghost index”?  Well, that’s where the “friendly” part comes in.  The index has done remarkable well relative to other benchmarks, as you’ll see in the chart below.

Yahoo! Finance has historical data on ^CND going back to October 2001, so that’s what we used as our starting point.  You can see quite clearly that CND has outperformed both the S&P/TSX Composite Index and the NASDAQ Composite Index for most of the 8 year span… in many periods, quite dramatically.

As of last Friday, you can see that the cumulative percentage gain across the entire graph is about +125% for NASDAQ Canada, compared to +50% or so for the S&P/TSX Composite Index and almost nothing for the NASDAQ Composite. With the gains in the Canadian dollar over the past few years, the currency-adjusted difference between the two NASDAQs would be even more extreme.

So, let’s bring this right up to date with some year-to-date numbers…

* NASDAQ Canada: +56%
* NASDAQ Composite (US): +4%
* S&P/TSX Composite Index: +11%

So, why is this index so invisible?  Well, we don’t have the inside information to answer that, but this smacks of an investment opportunity that shouldn’t be ignored.

Unfortunately, the best way to capture the NASDAQ Canada Index performance would be a NASDAQ Canada Index ETF… sorry, doesn’t exist!

What you can do, though, is look at the performance of the constituent companies in the NASDAQ Canada Index. Since most have dual-listings with the TSX as well, you’ll find some in the DATA & CHARTS workbook, and others in the Premium Service Canadian database. There is also a Premium Service US database available on a subscription basis.  Trend and consistency values for all NASDAQ Canada Index stocks are included there.

By investing in the best performers of the CND index you should be able to obtain results even better than those with the index itself.  Something to think about.

Only 6 of the 48 constituent companies have negative trend values right now. Some with the best trend/consistency pairs are… TLC Vision, Angiotech Pharma, Nicholas Financial and Neptune Technologies & Bioresources.

In a subsequent update, I’ll include a breakdown of the sectors represented in the CND…

HINT: Like American NASDAQ, lots of INFORMATION TECHNOLOGY and HEALTH CARE companies… but lots of INDUSTRIALS and ENERGY too.