TSX - March 15, 2009

charts courtesy of stockcharts.com

It’s quite some time since I last wrote about TSX here. The last time, we had a tight range situation, and I said that it would soon either breakout and run, or breakdown and tumble. Either way a trade could be there for the taking

It broke down and tumbled.

Notice the way TSX has outperformed S&P 500 since the lows of November 2008.

Whether this outperformance will continue or not is for the market to decide. First we need to see if the index has bottomed or not

I can count 5 waves down from the high of January 6. So I have a minimum wave set to satisfy the requirements.

Of course this might be the first wave of a nightmarish, extended wave down, but since we are not far from the low of March 9, I thought a starting long position had an acceptable risk/reward profile.

Breadth has been improving

Stockcharts does not have McClellan breadth measures for TSX. I compute them myself for TSX60, which is an index of 60 large cap companies on the Toronto Exchange

Not bad. Getting a bit overbought, though.

As I have mentioned before, TSX is dominated by 3 sectors: Materials, Energy, and Finance. Well, we have Research In Motion as well.

The materials sub-sector of TSX has been doing quite well, thanks to the performance of gold stocks. Canadian Banks have been getting a lot of media spotlight lately. Canada’s banking system has been ranked number 1 in the world. I don’t really care about media rankings and stuff like that. It’s all bubble-paganda to me. Cheer led by the likes of Larry Kudlow, Dennis Gartman, and our very own PM, Stephen Harper. President Obama showered praise on our banks as well.

Still, many care about stuff like that, and that may help Canadian banks attract international capital in terms of flow of funds as well equity purchases in the open markets.

Now, if the energy sector finds a bottom as well, TSX may do quite alright in coming weeks.

But, first things first: we need to get a mid-term uptrend. Until then, as long as the recent lows hold, any pullback may offer a low-risk trade on the long side

There are two active ETFs for the long side of TSX60. This is leveraged ETF

And this is a regular index ETF for TSX60

Again, the March lows should hold. Otherwise, I will have to re-evaluate