Now is the time for Canadian investors to re-examine their Canadian equity holdings following a period of exceptional strength. Investors holding Canadian equities during the recent annual period of seasonal strength from October 28 to May 5 are happy. The S&P/TSX composite index recorded a gain of 8.8 per cent plus dividends.
Technical indicators for the S&P/TSX composite index began to show technical deterioration this week. The index began to underperform the S&P 500, fell below its 20-day moving average, recorded a Stochastics sell signal by falling below 80 per cent, recorded an RSI sell signal by dropping below 70 per cent and recorded a moving average convergence/divergence (MACD) sell signal by completing a bearish cross over from an overbought level.
The TSX composite is entering into a typical period of higher-than-average volatility this summer. Economic news in Canada has turned mixed recently. April employment disappointed with a decline of 28,900 positions. Canada's March trade balance released earlier this week was significantly lower than consensus. Economic uncertainties related to the U.S. mid-term election this fall also reduce prospects for Canadian economic growth in the second and third quarters. Analysts recently lowered 2014 earnings and cash flow estimates for major Canadian companies following weak weather-related first quarter results.
The period of seasonal strength has ended. Now is the time to take seasonal profits in the Canadian equity market.
Globe app users please click here to see charts on S&P/TSX composite seasonality
Disclaimer: Comments, charts and opinions offered in this report by www.timingthemarket.ca and www.equityclock.com are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed. Don and Jon Vialoux are Research Analysts with Horizons ETFs Management (Canada) Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons ETFs Investment Management (Canada) Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons ETFs Investment Management (Canada) Inc.