TSX TrendWatch Weekly

“Consolidation” is a word often used to describe stock market conditions when prices turn kind of flat for a while, especially on lower than average volume.  This could be one of those consolidation phases right now, but we’ll be the first to admit that there isn’t really a mathematical definition for this concept… just an overall feeling. More on this topic below, but first last week’s data that kind of support this perspective.

WEEKLY REVIEW… The S&P/TSX Composite Index eked out a small +0.3% gain last week, after more substantial gains in preceding weeks. The S&P/TSX Venture Index  fared a little better at +0.7%.  The major US indexes performed better still with the DJIA up +0.6%, the S&P 500 up +1.0%, and the Nasdaq Composite up +1.8%. Nothing outstanding, though!

The 10 sector indexes were within roughly a +1% and -1% range, but all of the trend values are positive… with FINANCIAL SERVICES and INFORMATION TECHNOLOGY on top and CONSUMER STAPLES and ENERGY with the lowest (but positive) trend values.

Regular readers will know that I occasionally like to look at a “black sheep”… the Nasdaq Canada Index (^CND on Yahoo! Finance, CND-I on GlobeInvestor). The index is comprised of Canadian stocks that are listed on the US Nasdaq exchange. In most cases the stocks are cross-listed on the TSX too, so you can buy them with $US or $CA. Unfortunately, there’s no way of buying the index itself through an ETF or any other means.

But you could create your own mini-CND portfolio, much like a fee-less little mutual fund.  You’d just have to download yourself of a copy of the constituent companies from Yahoo! Finance.  A typical individual investor wouldn’t buy all 43 stocks that make up the index, but you could follow the best trend/consistency performers that are also listed in our free S&P/TSX Composite Index listings or from a more in-depth list from our Premium Service databases.

Oh, and by the way, the Nasdaq Canada Index was up +6.6% last week, and is up 10.6% year-to-date.  By comparison, the S&P/TSX Composite Index was up +0.3% last week, as already mentioned, and up 2.3% year-to-date. No pause-and-consolidate for the CND so far.  One part of resolving the mystery is that there is a much large HEALTH CARE component to CND than you’ll find in any other Canadian index. You can’t even compare the S&P/TSX HEALTH CARE  Index, because there are only 4 companies in it. A better comparison for the HEALTH CARE portion of CND is the AMEX Biotech Index… up 30% year-to-date, up 5% last week alone, and trending up at 3.7% per week with 91% consistency. That’s performance that could make you forget about currency exchange risks due to the advancing loonie.

80% of the S&P/TSX Composite Index constituent stocks have positive trend values. The median %-increase per week for those trend values is +0.8%. It sometimes makes it more real to annualize this number in your head by multiplying by 50 = +40%.  There are no guarantees, of course, because next week’s reading could be quite different. But with that kind of carrot in  front of you, can you afford to be on the sidelines?

CONSOLIDATION… It actually should be possible to build a mathematical algorithm to let us know when consolidation is happening, but I’m not sure it would worth the effort. In subjective terms, we’re talking about lower volatility on a day-by-day basis, lower trading volumes, modest price changes one way or the other, and an overall sense that investors are wondering “what’s going to happen next?”  Will this bull market continue, or should we brace ourselves for a correction?

Most analysts consider a consolidation healthy and necessary now and then after major price moves, and technical analysts tend to believe that the longer the consolidation period, the larger and faster the move will be (either up or down) when prices break one way or the other on heavier volume. There may be something to that, but it really doesn’t affect my trading practices.

I like to follow a lot of these market phenomena much as an anthropologist studies a primitive tribe somewhere buried in the jungles of South America. I try to figure out the belief systems and why the natives have come to establish certain bizarre behaviour patterns. I might gain some insights into how they think, but it’s incredibly rare that it will affect anything I do in my real life.  After all, some of us are more civilized! I’m not about to start licking toads or performing dances and incantations to improve market conditions.

No, I’ll just go with the flow as usual… letting my relative trend analysis™ (RTA) tell me what’s happening and where my money should be.  If there is little change in my bottom line for a few weeks while this “consolidation” ritual takes place, that’s fine with me. It might give me time to set up a Nasdaq Canada web site.  Is anyone interested?

GLOBEINVESTOR (CLASSIC) R.I.P… The transition from the original Glove Investor web site to the current one has been an interesting one. For quite a while the original site was there and accessible while the new BETA version showed up in orange.  (The original is now gone… RIP.) Aside from the colour scheme, there was lots of hype in the Globe & Mail and at the site itself about all the new features… even while they gutted some of the best features for individual investors right out of the original version. Historical data is gone, downloads of any kind are pretty much gone, and almost all comparative data have been reduced, if not eliminated.

The goal presumably has been to draw a sharper line between GlobeInvestor and GlobeInvestorGold, the pay-per-view version… so as to book more subscribers. The problem with that is that they seem to have blown the budget on the new basic GlobeInvestor.  There have been no improvements to GlobeInvestorGold that I can see and it’s even its design is starting to look tired when compared with the face-lift of the new basic site. Besides that, you’ve always been able to get better data on Canadian and US stocks at Yahoo! Finance for free than you ever could get at GlobeInvestorGold for $15.95 per month… and it’s all downloadable at Yahoo!, compared to the very restricted download capabilities at GlobeInvestorGold.

Obviously, I still wish them well, because all investors need as many good tools and data and information resources as possible to maximize their returns. I just think that the Globe made some horrendous mistakes in their online strategy for GlobeInvestor. I’m sure they won’t get any more than a marginal increase in GlobeInvestorGold subscribers, and they could have accomplished so much more by blending the two services (with an advertising-only revenue model). If that had happened, they could have potentially offered some real competition to Yahoo! Finance.

This entry was posted on Monday, March 15th, 2010 at 6:01 pm and is filed under Uncategorized.